Royal Bank of Scotland could have to pay higher than expected fines to cover the cost of involvement in the mis-selling of US mortgage-backed securities, the Times reported on Friday, pushing RBS shares lower.
The part-nationalised bank, which had set aside £1.9 billion to deal with the claims, could be asked by the Federal Housing Finance Agency (FHFA) to pay fines of more than £5 billion over the sale of about $32 billion of mortgage-backed debt in the US, the report said.
An RBS spokeswoman declined to comment on the report. The bank agreed to pay a $99.5 million fine in June to settle claims it misrepresented more than $2 billion of mortgage-backed bonds during the housing bubble between 2005 and 2007.
The federal court in Connecticut is handling the new case which addresses a much larger portion of mortgage-backed securities.
RBS chief executive Ross McEwan said in October that the bank would not pay a dividend until it had strengthened its capital position and had more clarity over future misconduct charges.
“We believe that a $5 billion settlement would be towards the top-end of market expectations for this particular issue, and slightly above the levels where other banks have settled in relation to the assets involved, but it’s not inconceivable” said RBC Capital Markets banks analyst Leigh Goodwin.
The report, citing unnamed sources familiar with the situation, said RBS’s £1.9 billion provision was unlikely to be enough to cover the expected fines.
Analysts at Credit Suisse last year estimated European banks would take an $11 billion hit from a raft of mortgage-related litigation costs in the US.
In June the FHFA had totalled about $16.1 billion of settlements, stemming from lawsuits it filed in 2011 to recoup losses on roughly $200 billion of mortgage-backed securities purchased by Freddie Mac and Fannie Mae. – (Reuters)
