Royal Bank of Scotland said it will pay £4.2 billion to settle one of two US investigations into allegations it mis-sold mortgage-backed bonds.
RBS needs to resolve the probes before the UK government can start to sell down its 71% stake in Edinburgh-based bank that was bailed out by the UK taxpayer for about £46 billion.
The bank still has to reach a settlement with the US Department of Justice (DoJ).
RBS said it agreed to settle the lawsuit with the US Federal Housing Finance Agency (FHFA) that alleges RBS mis-sold $32 billion of mortgage-backed securities before the global financial crisis.
RBS CEO Ross McEwan said: “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.
“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.”
RBS said in a regulatory statement: “The Royal Bank of Scotland Group plc has reached a settlement with the Federal Housing Finance Agency (FHFA) as conservator of Fannie Mae and Freddie Mac, to resolve claims by FHFA in relation to RBS’s issuance and underwriting of approximately US$32 billion (£25 billion) of residential mortgage-backed securities (RMBS) in the US.
“As part of the settlement, FHFA’s outstanding litigation against RBS will be withdrawn …
“Under the settlement, RBS will pay FHFA US$5.5 billion (£4.2 billion), of which US$754 million (£581 million) will be reimbursed to RBS under indemnification agreements with third parties.
“The cost to RBS (net of the indemnity mentioned above) of US$4.75 billion (£3.65 billion) is largely covered by existing provisions.
“An incremental charge of US$196 million (£151 million) will be recorded in the RBS Q2 2017 results which will be published on 4 August 2017 …
“As previously disclosed, RBS continues to cooperate with RMBS related investigations and proceedings (both formal and informal) by federal and state governmental law enforcement and other agencies including the US Department of Justice (DOJ) and various other members of the RMBS Working Group of the US Financial Fraud Enforcement Task Force.
“The duration and outcome of these investigations, including in particular the DOJ’s civil and criminal investigations, and other RMBS litigation matters remain uncertain, including in respect of whether settlements for all or any of such matters may be reached.”