LONDON: Royal Bank of Scotland could have to pay higher than expected settlements 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 £1.9bn to deal with the claims, could be asked by the Federal Housing Finance Agency (FHFA) to pay settlements of more than £5bn over the sale of about $32bn of mortgage-backed debt in the United States, the report said.
Spokeswomen for RBS and for the FHFA declined to comment.
The bank agreed to pay $99.5m in June to settle claims it misrepresented more than $2bn of mortgage-backed bonds during the US housing bubble between 2005 and 2007.
The federal court in Connecticut is handling a second case which addresses RBS’
sale of $30.4bn in mortgage
securities to Freddie Mac and Fannie Mae.
Shares in RBS fell 1.4 percent to 388.5 pence by 1538 GMT.
“We believe that a 5bn 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.
UBS in 2013 agreed to pay $885m to settle a lawsuit that alleged the bank misled Fannie Mae and Freddie Mac into buying $4.5bn of problem mortgage bonds.
The Times report, citing unnamed sources familiar with the situation, said RBS’s £1.9bn provision was unlikely to
be enough to cover the expected claims.
“The FHFA settlement is likely to be the largest of the outstanding litigation and
conduct hits that RBS still faces, but there are many others, and they are likely to drag on for many years,” Goodwin added.
RBS Chief Executive Ross McEwan said in October the bank would not pay a dividend until it had strengthened its
capital position and had
more clarity over future misconduct charges.
In September the FHFA had reached a total of $17.9 billion of settlements, stemming from lawsuits it filed in 2011 to recoup losses on roughly $200bn of mortgage-backed securities purchased by Freddie Mac and Fannie Mae. Reuters
