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RBS agrees to pay $4.9bn to settle US mortgage securities case
Royal Bank of Scotland has agreed to pay $4.9bn (£3.6bn) to settle a long running-investigation by the US Department of Justice into the bank's dealing in mortgage-backed securities before the financial crisis.
RBS said $3.46bn of the penalty would be covered by existing provisions and that it would take a further $1.44bn charge in the second quarter.
The settlement helps to pave the way for the government to start selling its 71% stake in RBS and for the bank to resume paying dividends. RBS expected to settle the case in 2017 but talks with the Department of Justice have dragged on.
City expectations for the size of the potential settlement had varied widely, with analysts having on average pencilled in an extra £2bn but some suggesting a $9bn total fine would have been plausible. RBS shares rose 5.5% to 291.4p at 08:52 BST.
Chief executive Ross McEwan said settling the case made it easier for investors to place a value on RBS. The government wants to start selling its stake, acquired in the banking bailout during the financial crisis, by March 2019.
McEwan said: "Today's announcement is a milestone moment for the bank. Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis."
Jason Napier, head of European banks research at UBS, said the extra charge was less than the £2.4bn he had expected. As well as clearing a path for the government to sell its RBS holding, the settlement will allow the bank to restart dividends, which were scrapped during the financial crisis, and to pick a new boss, he said.
"With the job of RMBS settlement almost complete and a return to dividends in sight, we also expect RBS to confirm a successor to current CEO Ross McEwan in 2H18," Napier said in a note to investors.
The fine will reduce RBS's common equity tier 1 (CET1) capital ratio by about 50 basis points. After accounting for the fine and a £2bn pension deficit contribution announced in April, the bank's CET1 ratio will be 15.1%.
The extra charge will be booked at NatWest Markets, RBS's corporate and investment bank, which sits outside the ring-fence that splits retail and investment banking.