LONDON -- Royal Bank of Scotland said Wednesday that it had agreed to pay $5.5 billion to U.S. authorities to resolve claims related to its underwriting and sale of toxic mortgage securities.
The settlement with the Federal Housing Finance Agency -- regulator of the mortgage-finance giants Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp. -- partially removes a longtime cloud from over the bank, which has tried to resolve ongoing litigation as part of its efforts to engineer a turnaround.
Royal Bank of Scotland, based in Edinburgh, Scotland, is restructuring as it sells businesses and dismantles its global investment bank to focus on retail and corporate banking in Britain and Ireland. But it is still 72 percent owned by the British government after a bailout during the financial crisis.
The bank said it continued to cooperate with investigations by the U.S. Justice Department and other U.S. regulators into the sale of mortgage-backed securities, which could lead to further settlements or penalties. Ewen Stevenson, the bank's chief financial officer, said during a conference call Wednesday that he could not provide an update on talks with the Justice Department but that he remained hopeful that the inquiry could be resolved this year.
The latest settlement relates to $32 billion in residential mortgage-backed securities.
"Today's announcement is an important step forward in resolving one of the most significant legacy matters facing RBS and is further evidence of the determination of the bank's leadership to put our remaining issues behind us," Ross McEwan, the bank's chief executive, said in a news release. "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."
In the fourth quarter, Royal Bank of Scotland set aside an additional $3.8 billion for investigations and litigation related to the sale of residential mortgage-backed securities as its rivals reached settlements with U.S. authorities.
Deutsche Bank and Credit Suisse reached multibillion-dollar settlements with U.S. authorities in December over sales of the same type of securities. The Justice Department also separately sued the British bank Barclays over the sale of toxic mortgage securities.
The Federal Housing Finance Agency sued Royal Bank of Scotland and 17 other financial institutions in 2011, accusing them of violating federal and state securities laws in the sale and underwriting of residential mortgage-backed securities that were purchased by Fannie Mae and Freddie Mac from 2005 to 2007.
Under the terms of the agreement announced Wednesday, Royal Bank of Scotland would pay $4.52 billion to Freddie Mac and about $975 million to Fannie Mae, the Federal Housing Finance Agency said in a news release.
Royal Bank of Scotland said it would be reimbursed $754 million of the settlement amount under indemnification agreements with third parties. The housing agency would then drop its litigation against the bank, the lender said. The bank said the settlement was largely covered by its existing litigation provisions but that it would take an additional charge of $196 million in the second quarter.
The bank said it still had unresolved residential mortgage-backed securities litigation matters related to issuance of less than $1 billion of the securities from 2005 to 2007.
That amount does not include a separate case by the Federal Housing Finance Agency involving securities issued by Nomura, for which Royal Bank of Scotland said it intended to pursue indemnification.
Business on 07/13/2017