RBS reaches $4.9B settlement in U.S. probe of mortgage-backed securities

Royal Bank of Scotland is seen at office building in Zurich Thomson Reuters

RBS a year ago posted its first annual bottom-line profit since 2007, the eve of the global financial crisis, following a huge drop in litigation costs.

"Today's announcement is a milestone moment for the bank", said RBS chief executive Ross McEwan.

The department has been examining RBS's issuance and underwriting of U.S. residential mortgage-backed securities (RMBS) between 2005 and 2007. It said that around $3.5 billion of the DOJ settlement would be covered by existing provisions, with the rest accounted for by an "incremental charge" in the second quarter of 2018.

He said that "removing the uncertainty" would mean that RBS, bailed out by the United Kingdom taxpayer during the financial crisis, would make the bank much stronger.

The Royal Bank of Scotland has apparently reached a tentative deal of Dollars 4.9 billion to resolve the United States probe into the sale and structuring of its mortgage backed securities.

While the agreement is only in principle, its arrival clears the way for taxpayer-backed RBS to restore its dividend and for the government to start selling down its more than 70% stake in the bank.

RBS was bailed out by the government at the height of the financial crisis.

JPMorgan in November agreed to pay $13 billion, the largest settlement in USA history.

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The fine had been a big obstacle to the government's plan, laid out in November, to begin reprivatising RBS before the end of the 2018-19 fiscal year - a much needed boost for finance minister Philip Hammond's coffers.

Those remaining banks could now expect to pay less than had been estimated - in UBS's case, less than half of the top-end forecast of $5 billion, Elliott Stein, a Bloomberg Intelligence analyst, wrote in a note on Thursday.

The letter said the bank had only received one such claim so far, but expected it could face some very large claims once the claims process gets further underway.

RBS, however, cautioned that the settlement was subject to the parties entering into a legally-binding agreement, with no assurance that they would "agree on the final terms of any proposed settlement".

"This is hardly a Silicon Valley company".

RBS may have benefited from settling under Trump's administration, which has been softer on banks than that of his predecessor Barack Obama.

RBS has already accepted some wrongdoing and set aside 400 million pounds to compensate firms in its GRG unit, and appointed a former high court judge Sir William Blackburne to oversee appeals by customers not happy with their payouts.

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