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RBS shares leap on US mortgage bond deal

Royal Bank of Scotland agrees $4.9 billion (£3.6 billion) settlement with US Department of Justice, removing uncertainty over its shares.

 
RBS shares leap on US mortgage bond deal

Shares in Royal Bank of Scotland (RBS) jumped 6% today after the taxpayer-owned bank agreed a $4.9 billion (£3.6 billion) settlement with the US Department of Justice (DoJ) over the sale of toxic mortgage-backed securities between 2005 and 2007.

The civil settlement is smaller than feared and marks the end of a long running probe by US authorities. With the uncertainty removed, investors showed their faith in the bank by pushing its shares up 16p to 292.4p.

RBS has already set aside $3.46 billion and said it would take a $1.44 billion charge in the second quarter of this year to make up the difference.

The bill is far less than the $12 billion estimated by analysts when the DoJ begain its investigation into the bank's mis-selling of mortgage bonds before the 2008 financial crisis.

Resolution of the litigation will enable RBS to resume dividend payments to shareholders. It also paves the way for chancellor Philip Hammond to start selling the government’s stake of more than 70% in RBS, which it has held since bailing out the bank for £45 billion in 2009, six months after shareholders had pumped in £12 billion in an emergency rights issue.

RBS chief executive Ross McEwan stated: ‘Today’s announcement is a milestone moment for the bank. Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis.

‘Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer.’

If the settlement is finalised, the bank’s common equity tier 1 ratio - a key measure of financial strength - will dip 0.5% (50 basis points) to 15.1%.

 

2 comments so far. Why not have your say?

JohnR

May 10, 2018 at 16:29

Bribe...

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J Thomas

May 10, 2018 at 22:53

Don't forget, RBS shares were converted into a 10/1 split after the financial crisis. So every ten RBS shares you owned then were converted into just one.

An RBS share which was worth £6.50 before is still only worth 29p even after todays large rise.

Your great grandchildren may see RBS shares at £6.50 again in fifty years.

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