This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2017/jan/26/rbs-royal-bank-scotland-us-mis-selling-scandal-bank-loss-fine

The article has changed 7 times. There is an RSS feed of changes available.

Version 3 Version 4
RBS takes £3.1bn hit over US mis-selling scandal UK chancellor rules out cutting stake in RBS after £3.1bn US fine
(about 7 hours later)
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 chancellor has ruled out reducing the government’s stake in Royal Bank of Scotland after it took a £3.1bn hit towards the cost of a bond mis-selling scandal in the US.
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 charge for the latest regulatory failure will push RBS to its ninth consecutive annual loss and was blamed by Ross McEwan, the bank’s chief executive, on the bank having “lost its way” into the run up to the 2008 crisis. RBS has already incurred £50bn of cumulative annual losses since taxpayers pumped in £45bn to keep it afloat.
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. Speaking during a visit to Microsoft’s headquarters in Reading after RBS published an unscheduled trading update on Thursday, Philip Hammond said the government regarded the 73% stake as a “long-term asset”, as the chancellor quashed any hopes that tackling the long-running bond mis-selling scandal might facilitate a stake sell-off.
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’s shares are trading around the 230p level, below the 502p average price that taxpayers paid during the crisis.
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 has now set aside £6.7bn to tackle up to 15 investigations related to the way it packaged up mortgages and sold them on to investors in the run-up to the financial crisis. These so-called residential mortgage backed securities (RMBS) were a lucrative business for the industry but have proved costly as the US authorities seek to punish the sector for investors’ losses.
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 bank refused to say how much of the £3.1bn was to cover a settlement with the US Department of Justice,
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. which has already reached deals with a range of US banks. On 23 December the DoJ secured its first agreement with European lenders when it extracted $12.5bn (£9.8bn) from Deutsche Bank and Credit Suisse over the same scandal.
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. McEwan would not comment on suggestions that the US penalty represented a transfer of wealth from the UK across the Atlantic or entertain any discussion about following the route taken by Barclays to refuse to settle with the justice department.
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.” Analysts questioned the impact of any consumer compensation that RBS would be required to pay to US mortgage customers, which finance director Ewen Stevenson said was “highly speculative”. However, he provided a “health warning” that the bill may yet rise and that no formal discussions were under way with the justice department.
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. Ian Gordon, an analyst at Investec, noted 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.”
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. Sandy Chen, an analyst at stockbroker 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.”
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”. Hammond last year cited the RMBS settlement as one reason for not selling of any more shares along with the struggle to sell off 300 branches which was demanded by Brussels under the terms of state aid.
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.” Labour MP John Mann, who sits on the Treasury select committee, urged the government to break up RBS. “This latest admission of failure is just another sign that RBS in its current form isn’t fit for purpose,” said Mann.
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.”