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RBS sets aside further £3bn for US-mortgage mis-selling

Written by: Paloma Kubiak
The Royal Bank of Scotland has made a further £3bn provision to cover fines relating to claims of mis-selling US mortgage backed securities in the run up to the financial crisis.

RBS Group today announced it will set aside a further £3.1bn ($3.8bn) provision in relation to various investigations and litigation matters concerning its US residential mortgage-backed securities (RMBS).

During a conference this morning, RBS CEO Ross McEwan said the full year 2016 results will be announced on 24 February 2017, and the Q4 2016 results will reflect the additional provision.

McEwan added that RBS “continues to co-operate with the US Department of Justice in its civil and criminal investigations” and “considers it appropriate to take this provision now” as the duration and outcome of the investigations remain uncertain.

It was noted that RBS may need to offer further provisions depending on the final outcomes of the investigations and its existing disclosures.

McEwan said: “Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees.”

Surprise rise in RBS shares

RBS shares rose by 2% in early morning trading and Laith Khalaf, senior analyst at Hargreaves Lansdown, said it shows the market welcomes the additional step towards closure on this issue, though the actual cost of litigation may come in ahead of what RBS has so far put aside.

“The sins of the past still loom large in the present for RBS, and the cost of US litigation is the biggest in a long line of problems besetting the bank at the moment.

“The US Department of Justice is expected to impose a hefty fine on RBS for its part is mis-selling mortgage-backed securities in the run up to the financial crisis. It doesn’t help that the fine will be in dollars, a currency which has risen by 15% against the pound since the EU referendum.

“Today’s announcement gives the market an additional steer, directly from RBS, as to what the cost of US litigation may be. However, the additional provisions will take a toll on the bank’s balance sheet, which it was already busy repairing after it failed a Bank of England stress test last November.”

Khalaf said RBS is “heading in the right direction”, but added: “Progress is slow, profitability is elusive, and a return to private ownership is in the long grass.”

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