LONDON: Royal Bank of Scotland has
taken a 3.1 billion pound ($3.92 billion) provision as it prepares to settle
claims in the United States that it mis-sold toxic mortgage-backed securities
in the run up to the 2008 financial crisis.
The surprise provision means that RBS
is unlikely to make a profit in 2016, the ninth straight year the bank has
failed to make an annual profit.
RBS is currently in negotiations with
the US Department of Justice over the settlement, the timing of which is still
uncertain.
This is the first time that RBS has set
aside any money to directly cover a settlement with the US Department of
Justice over the alleged decades-old mis-selling of mortgage-backed securities.
RBS is the latest European bank to be
close to a settlement with US authorities. Credit Suisse earlier this month
agreed to pay $5.3 billion and Deutsche Bank agreed to pay
$7.2 billion to settle their respective
mis-selling cases.
These settlements stem from an
initiative launched in 2012 by former US President Barack Obama to hold Wall
Street accountable for misconduct in the sale of the securities that helped to
trigger the worst economic crisis since the Great Depression.
RBS Chief Executive Ross McEwan has
been trying to clean up RBS's balance sheet and end an array of legal cases so
the government can sell its more than 70 percent stake in the bank after a 45.5
billion pound bailout during the financial crisis.
The British government has said that
the uncertainty about the scale of the penalty is one of the reasons why it
halted plans to sell any further shares in the lender.
"Putting our legacy litigation
issues behind us, including those relating to RMBS, remains a key part of our
strategy," McEwan said in a statement.
RBS said in the statement it continued
to cooperate with the Department of Justice, although it remained uncertain
when a settlement might be reached.
The bank said the total misconduct bill
for mis-selling these securities might exceed its provisions.
Copyright Reuters, 2017
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