RBS reaches $4.9 billion settlement with DOJ over pre-crisis mortgage bonds

Proposed settlement would be far less than originally estimated

For the second time this year and at least the seventh time in recent memory, the Royal Bank of Scotland is about to cut a massive check as part of a settlement over the bank’s mortgage practices in the run-up to the housing crisis.

Back in March, it was a $500 million settlement with the state of New York over the bank’s pre-crisis mortgage bond activities.

Now, RBS is preparing for a nearly $5 billion settlement with the Department of Justice that would cover the bank’s issuance and underwriting of residential mortgage-backed securities between 2005 and 2007.

RBS announced Thursday that it reached a settlement in principle with the DOJ that would bring the government’s long-running inquiry into the bank’s mortgage bond activities to an end.

RBS cautioned that the settlement is not yet finalized, but the proposed agreement would see RBS pay out a penalty of $4.9 billion.

The settlement, if finalized and approved, would be significantly smaller than many originally thought. 

Back in 2016, reports suggested that RBS may end up paying as much as $13 billion to settle the government’s inquiry.

And last year, RBS set aside an additional $3.8 billion to be used to settle with the DOJ. At the time, it was believed that RBS had at least $8 billion set aside for a settlement with the DOJ.

But, according to the bank, the settlement will be smaller than that by several billion dollars.

The pending settlement comes on the heels of RBS’ $500 million settlement with the state of New York that covered the bank’s “deceptive practices and misrepresentations to investors in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities” leading up to the financial crisis.

That settlement is hardly the first that RBS paid out as part of its penance for its pre-crisis activities.

Over the last few years years, the bank reached a $5.5 billion settlement with the Federal Housing Finance Agency; a $129.6 million settlement and a $1.1 billion settlement with the National Credit Union Administration; a $120 million settlement with the state of Connecticut, a separate $44 million settlement with the DOJ and the Special Inspector General for the Troubled Asset Relief Program; and a $125 million settlement with the state of California.

Add in this new nearly $5 billion settlement and RBS will have paid out almost $12.5 billion in settlements for its’ “ambitions” during the run-up to the crisis.

“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,” RBS CEO Ross McEwan said in a statement. “Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer.”

The bank cautioned the proposed settlement is “subject to the DOJ and RBS entering into a legally-binding agreement,” and added that there can be “no assurance that the parties will agree on the final terms of any proposed settlement.”

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