RBS fined $7.6b over role in US sub-prime crisis

LONDON • Britain's bailed-out Royal Bank of Scotland (RBS) has agreed to pay a United States regulator US$5.5 billion (S$7.6 billion) over its role in the sub-prime mortgage crisis more than a decade ago.

The lender said in a statement that the penalty was a "heavy price" to settle US mis-selling claims, which occurred in the run-up to the notorious global financial crisis and subsequent worldwide recession.

"The Royal Bank of Scotland... has reached a settlement with the Federal Housing Finance Agency (FHFA)," the lender said yesterday, adding that FHFA "litigation against RBS will be withdrawn".

The net cost will be US$4.75 billion due to special indemnity agreements.

The deal resolves FHFA claims in relation to RBS' issuance and underwriting of about US$32 billion of residential mortgage-backed securities in the US before the financial crisis erupted.

The agreement settles an FHFA lawsuit alleging that RBS sold faulty mortgage bonds to Fannie Mae and Freddie Mac between 2005 and 2007.

RBS will pay approximately US$4.525 billion to Freddie Mac and about US$975 million to Fannie Mae, the FHFA added.

The announcement resolves one of two major US probes into mis-selling allegations; RBS has yet to reach a deal with the Department of Justice.

"This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions," RBS chief executive Ross McEwan said in the statement.

The deal was "an important step forward in resolving one of the most significant legacy matters facing RBS".

Edinburgh-based RBS remains 70 per cent state-owned after receiving a vast government rescue at the height of the 2008 crisis in the world's biggest banking bailout.

The FHFA fine is largely covered by money already set aside by the bank, which has long been plagued by legacy costs arising from its past conduct.

RBS chief finance officer Ewen Stevenson said the FHFA settlement was "in the region of what we'd been anticipating", but analysts indicated that it was higher than forecast.

The system-wide failure of complex securities derived from residential mortgages caused a cascading wave of bankruptcies and crises that sparked a global recession, leading to tens of millions of job losses around the world.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on July 13, 2017, with the headline 'RBS fined $7.6b over role in US sub-prime crisis'. Print Edition | Subscribe