IBS Journal August 2017
09
RBS slapped with $5.5bn charge by US regulators
R
oyal Bank of Scotland (RBS) has been ordered to pay $5.5 billion to US regulators after it was found the bank had sold toxic mortgage bonds.
The order has been labelled a “stark reminder” to the bank over its conduct prior to the financial crisis. RBS, which is 71% taxpayer-owned, has plenty more disputes to resolve in the US which could see it run up a bill into the tens of billions.
Ross McEwan, chief executive of RBS, said: “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. This bank and British taxpayers have paid a high price for these poor decisions.”
The settlement with the Federal Housing Finance Agency (FHFA) is the agency’s 17th since it began filing lawsuits against banks in 2011. Nearly $30 billion has since been paid to the FHFA, with the latest payout by RBS the second-largest ever.
RBS is being punished for the way that $32 billion of mortgages were packaged up and sold as residential mortgage-backed securities (RMBS). Between 2005 and 2007 RBS was the largest non-US bank engaged in the practice.
The settlement does not include any admission of wrongdoing by the bank, which shut down its bond-selling operations in 2014. RBS put aside £6.6 billion to cover the cost of its RMBS mis- selling. McEwan said other disputes with the US Department of Justice should be wrapped up by the end of the year, but it’s getting “increasingly challenging”.
RBS is due to report a decade of consecutive annual losses since its £45 billion bailout in 2008.
It’s not just the US regulator that RBS is in hot water with. Last month the lender angered the UK’s challenger banks with a blueprint for its new SME funding project.
The scheme is comeuppance for RBS’ £45.5 billion bailout during the 2008 financial crisis. The bank is tasked with setting up a fund worth £750 million to help its rivals bolster their business operations.
Ross McEwan: RBS and the British taxpayers have paid a high price for poor decisions made before the financial crisis
The fund is supposed to incentivise RBS small-business customers to move their current accounts to newer banks. According to the Financial Times, the fund is split into two tiers. The top tier gives rival banks with existing current account facilities, which comprises large lenders such as Santander, first refusal.
This means that smaller banks, of which some don’t offer current account capabilities, will be left out. A number of challenger banks have now written to the European Commission (EC) to highlight the supposed shortcomings in the plan.
A decision by the EC can be expected near the end of the month, once it has assessed the feedback and interviewed other parties.
www.ibsintelligence.com
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