It’s taken six years and $27 billion for RBS to pay for its crisis-era sins

Moving on.
Moving on.
Image: Reuters/Peter Nicholls
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A heavy weight has finally been lifted off the shoulders of Royal Bank of Scotland CEO Ross McEwan. The British bank said today that it agreed to pay $4.9 billion to the US Justice Department to settle an investigation into RBS’s mis-selling of mortgage securities in the run-up to the global financial crisis.

This fine has been looming over the bank for a long time—a year ago, analysts estimated that it could be between $12 billion and $20 billion. A penalty of only $4.9 billion marks a “milestone” for RBS, McEwan said in a statement. “That was a significant legacy issue and the biggest uncertainty that was hanging over this bank,” he added during a conference call.

The bank had already set aside $3.5 billion in provisions to pay for the fine, so the hit to its second-quarter profit will be $1.4 billion. Since 2012, RBS has spent some £20 billion ($27 billion) paying for a wide variety of past misdeeds.

The US Justice Department has fined other banks more than $60 billion for their roles in selling toxic mortgage securities at the center of the financial crisis. Bank of America paid the most, at $16.7 billion.

Last year, RBS paid $5.5 billion to the US Federal Housing Finance Agency for similar misdeeds to the ones in today’s settlement. The bank’s finance director, Ewen Stevenson, said that litigation over US mortgage securities cost the bank more than $10 billion in the end.

RBS has been roiled by many other scandals over the years, including Libor rigging and the misleading sale of payment protection insurance. More than a dozen pages in the bank’s latest annual report are dedicated to detailing litigation, investigations, and other legal issues. RBS still has $800 million set aside to cover other potential legal costs.

Still, finalizing the DOJ fine will clear a path for the bank to turn over a new leaf. Last year, RBS finally turned a profit after amassing nearly £60 billion in losses since 2007. The UK government can also start its plan to sell its majority stake in RBS, acquired when it bailed out the bank during the worst of the crisis. The bank may also resume dividend payments.

Traders considered today’s announcement a step in the right direction, and sent the bank’s share price up 6% when markets opened.

But RBS is still a long way off from recovering from where it was before the financial crisis—namely, the largest bank in the world by assets. “Back in 2005 to 2007 there were some things done here that when they come out and are published, none of us will be comfortable reading them,” McEwan said (paywall).