May 10, 2018 / 12:31 AM / 6 months ago

UPDATE 2-RBS reaches $4.9 billion deal to settle U.S. mortgage bond probe

(Adds further details on settlement, background on related cases, bylines)

By Nate Raymond and Eric Walsh

BOSTON/WASHINGTON May 9 (Reuters) - Royal Bank of Scotland Group Plc said on Wednesday it had agreed to pay $4.9 billion to resolve a U.S. Department of Justice probe into its structuring and sale of mortgage-backed securities ahead of the 2008 financial crisis.

The British state-backed bank said that $3.46 billion of the proposed civil settlement will be covered by existing provisions and the bank will take a $1.44 billion incremental charge in 2018's second quarter to cover the rest.

The accord would resolve a major issue that has weighed on the company's share price and complicated the UK government's plan to sell down its more than 70 percent stake in the bank.

RBS Chief Executive Ross McEwan called the deal a "milestone."

"Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer," he said in a statement.

The U.S. Attorney's Office in Massachusetts, which led the probe, confirmed it had reached an agreement in principle with RBS that would resolve potential civil claims related to mortgage-backed securities that were issued from 2005 to 2008.

"Further details remain to be negotiated, however, before a formal agreement can be reached," the office said.

The implosion of markets for risky residential mortgage-backed securities and related derivatives contributed to the 2008 global financial crisis and prompted a series of investigations by authorities including the Justice Department.

The Justice Department had previously settled with banks including Citigroup, Deutsche Bank, JPMorgan Chase, Credit Suisse, Morgan Stanley, Goldman Sachs, Bank of America and Barclays .

The U.S. Attorney's Office in Massachusetts had also been conducting a criminal investigation into RBS and former employees who were involved in structuring and selling the securities.

But the settlement that RBS and the office disclosed on Thursday was only civil in nature, signaling no criminal charges were likely to result.

RBS previously agreed in July 2017 to pay $5.5 billion to resolve a lawsuit by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, claiming it misled the U.S. mortgage giants into buying mortgage-backed securities.

It resolved similar claims by the National Credit Union Administration related to mortgage-backed securities RBS sold to credit unions that later failed for $1.1 billion in 2016.

RBS has also in recent months resolved investigations by the state attorneys general of California and New York for $125 million and $500 million, respectively. (Reporting by Nate Raymond and Eric Walsh Editing by Grant McCool and Darren Schuettler)

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