RBS In $5.5B Settlement With The Federal Housing Finance Agency

The Royal Bank of Scotland will pay approximately $5.5 billion in a settlement deal with authorities in the United States with regards to a probe on mortgage-backed securities following which stretched for months. The deal with the United States Federal Housing Finance Agency takes the lender one step closer to resuming activity in the private sector.

“Today’s announcement is an important step forward in resolving one of the most significant legacy matters facing RBS. This settlement is a stark reminder of what happened to this bank before the financial crisis,” said Ross McEwan, the chief executive officer of RBS.

More to come

This is not the last penalty that RBS is likely to pay as it still has to settle with the U.S. Justice Department for what could turn out to be amounts totaling as much as $12 billion. The settlement with the Federal Housing Finance Agency has already been provisioned for earlier in the year though extra provisions will be made in the lender’s next quarterly results which are expected to be released next month.

Already the Royal Bank of Scotland has made a $1.1 billion settlement with the National Credit Union Administration of the United States in a suit that had been filed in the states of Kansas and California. In the case of other lenders such as Credit Suisse and Deutsche bank who were being probed on the same matter, the settlement value was a combined $12.5 billion. The Swiss and German lenders settled with the Department of Justice late last year.

Majority-owned by government

Currently the United Kingdom government owns a 72% stake in the Royal Bank of Scotland and the settlements are bringing the government closer to selling more of its stake the lender. This is according to Phillip Hammond, the UK chancellor. There have also been changes at the bank with investment-banking operations across the globe being halted and the focus being turned to commercial and consumer lending in Ireland and the United Kingdom.

Since the financial crisis the U.S. Federal Housing Finance Agency has collected penalties worth over $30 billion with regards to the mis-selling of mortgage bonds. The penalty paid by RBS is not the highest so far as it ranks lower than Bank of America’s which paid $9.3 billion three years ago. HSBC Holdings paid $550 million while Deutsche Bank paid approximately $1.9 million. JPMorgan Chase was also penalized and it paid $4 billion.