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| RBS takes £3.1bn hit over US mis-selling scandal | RBS takes £3.1bn hit over US mis-selling scandal |
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| Royal Bank of Scotland is to take a £3.1bn hit to cover the cost of a toxic bond mis-selling scandal in the US in a move that is likely to push it to its ninth consecutive annual loss. | Royal Bank of Scotland is to take a £3.1bn hit to cover the cost of a toxic bond mis-selling scandal in the US in a move that is likely to push it to its ninth consecutive annual loss. |
| The bailed-out bank has already incurred £50bn of cumulative annual losses since taxpayers pumped in £45bn to keep it afloat and the latest hit comes on top of £2.5bn of losses already reported for the first nine months of 2016. | The bailed-out bank has already incurred £50bn of cumulative annual losses since taxpayers pumped in £45bn to keep it afloat and the latest hit comes on top of £2.5bn of losses already reported for the first nine months of 2016. |
| Ross McEwan, the RBS chief executive, would not quantify the scale of the loss for 2016 ahead of full-year results on 24 February and blamed the loss on the bank having “lost its way” in the run-up to 2008 crisis. | |
| In an unscheduled trading update on Thursday, the bank said it would put aside £3.1bn towards the potential cost of a settlement with the US Department of Justice over the way mortgages were packaged up and sold in the run-up to the 2008 financial crisis. | In an unscheduled trading update on Thursday, the bank said it would put aside £3.1bn towards the potential cost of a settlement with the US Department of Justice over the way mortgages were packaged up and sold in the run-up to the 2008 financial crisis. |
| RBS is the last major bank to try to reach terms with the US authorities over the sale of residential mortgage-backed securities (RMBS), a lucrative business for the banking industry until the crisis.McEwan has been warning for two years about the potential hit to the bank from the scandal. | RBS is the last major bank to try to reach terms with the US authorities over the sale of residential mortgage-backed securities (RMBS), a lucrative business for the banking industry until the crisis.McEwan has been warning for two years about the potential hit to the bank from the scandal. |
| The bank now has £6.7.bn set aside for such RMBS matters and finance director Ewen Stevenson provided a “health warning” that the bill may yet rise. | The bank now has £6.7.bn set aside for such RMBS matters and finance director Ewen Stevenson provided a “health warning” that the bill may yet rise. |
| McEwan said: “Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees. | McEwan said: “Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees. |
| “This is a very large number. However, it reflects the legacy of the time when RBS lost its way as it embarked on a quest to build a global bank,” said McEwan, who took the helm in 2013. He described that global ambition as misguided and admitted that the RMBS operation – which before the banking crisis was a major moneyspinner for the US operations of Fred Goodwin’s RBS – had only been shut down in 2015. | “This is a very large number. However, it reflects the legacy of the time when RBS lost its way as it embarked on a quest to build a global bank,” said McEwan, who took the helm in 2013. He described that global ambition as misguided and admitted that the RMBS operation – which before the banking crisis was a major moneyspinner for the US operations of Fred Goodwin’s RBS – had only been shut down in 2015. |
| The scandal predates the new rules on pay, which allow bonuses to be clawed back or withheld when deals turn sour, which McEwan said meant that bonuses could not be reduced as result of the latest loss for the bank. | The scandal predates the new rules on pay, which allow bonuses to be clawed back or withheld when deals turn sour, which McEwan said meant that bonuses could not be reduced as result of the latest loss for the bank. |
| He would not comment on suggestions that the penalty from the US was a transfer of wealth from the UK across the Altantic or entertain any discussion about following the route taken by Barclays to refuse to settle with the DoJ. | He would not comment on suggestions that the penalty from the US was a transfer of wealth from the UK across the Altantic or entertain any discussion about following the route taken by Barclays to refuse to settle with the DoJ. |
| RBS shares rose 1% to 230p in early trading on Thursday – still below the average price of 502p at which taxpayers ploughed £45bn into the bank. | RBS shares rose 1% to 230p in early trading on Thursday – still below the average price of 502p at which taxpayers ploughed £45bn into the bank. |
| Sandy Chen, an analyst at Cenkos, said: “Weird, maybe, but taking £3.1bn in further provisions against US RMBS investigations and lawsuits should probably be regarded as good news; it implies that RBS must have convinced its auditors that it had reasonable grounds to take further provisions, and that a deal with the US authorities is within sight.” | Sandy Chen, an analyst at Cenkos, said: “Weird, maybe, but taking £3.1bn in further provisions against US RMBS investigations and lawsuits should probably be regarded as good news; it implies that RBS must have convinced its auditors that it had reasonable grounds to take further provisions, and that a deal with the US authorities is within sight.” |
| Speculation that RBS would finally start to take fresh provisions for the scandal has swirled since since 23 December, when Deutsche Bank and Credit Suisse agreed a combined $12.5bn (£9.8bn) deal with the DoJ and Barclays baulked against a potential deal. | Speculation that RBS would finally start to take fresh provisions for the scandal has swirled since since 23 December, when Deutsche Bank and Credit Suisse agreed a combined $12.5bn (£9.8bn) deal with the DoJ and Barclays baulked against a potential deal. |
| Analysts sought clarity about how much of the £3.1bn provision related directly to the discussions with the DoJ, given that the bank also faces up to 15 other investigations relating to RMBS. Stevenson insisted that no formal discussions were under way with the DoJ and would not quantify how much of the cash being put aside related to these negotiations. | Analysts sought clarity about how much of the £3.1bn provision related directly to the discussions with the DoJ, given that the bank also faces up to 15 other investigations relating to RMBS. Stevenson insisted that no formal discussions were under way with the DoJ and would not quantify how much of the cash being put aside related to these negotiations. |
| Analysts also questioned the impact of any consumer compensation that RBS would be required to pay to US mortgage customers – but Stevenson said this was “highly speculative”. | Analysts also questioned the impact of any consumer compensation that RBS would be required to pay to US mortgage customers – but Stevenson said this was “highly speculative”. |
| Ian Gordon, an analyst at Investec, said Theresa May was meeting President Donald Trump on Friday. “It would be nice to think that the recent improvement in UK/US relations could be harnessed to expedite an RBS regulatory settlement on equitable terms. Time will tell.” | Ian Gordon, an analyst at Investec, said Theresa May was meeting President Donald Trump on Friday. “It would be nice to think that the recent improvement in UK/US relations could be harnessed to expedite an RBS regulatory settlement on equitable terms. Time will tell.” |
| The uncertainty surrounding the scale of the punishment from the US authorities is one of the reasons cited by Philip Hammond for not being able to sell off any more of the 73% taxpayer stake. The other major reason is the failure to sell off 300 branches – known as Williams & Glyn – which was demanded by Brussels under the terms of state aid. | The uncertainty surrounding the scale of the punishment from the US authorities is one of the reasons cited by Philip Hammond for not being able to sell off any more of the 73% taxpayer stake. The other major reason is the failure to sell off 300 branches – known as Williams & Glyn – which was demanded by Brussels under the terms of state aid. |
| Analysts at Bernstein said: “An RMBS settlement would definitely be a big step closer to the bank resuming its dividend but we still don’t know whether this is the final amount covering all RMBS cases. There is still a last hurdle – the W&G disposal where we believe negotiations are on with Brussels at the moment on state aid. It’s unlikely the board will approve resumption until W&G is out of the way.” | Analysts at Bernstein said: “An RMBS settlement would definitely be a big step closer to the bank resuming its dividend but we still don’t know whether this is the final amount covering all RMBS cases. There is still a last hurdle – the W&G disposal where we believe negotiations are on with Brussels at the moment on state aid. It’s unlikely the board will approve resumption until W&G is out of the way.” |