Royal Bank of Scotland Reaches Deal to Settle U.S. Mortgage

Royal Bank of Scotland Group Plc reached a deal on paying $4.9 billion to resolve a U.S. Department of Justice probe into its structuring and sale of mortgage-backed securities ahead of the 2008 financial crisis.

According to the British state-backed bank, $3.46 billion of the proposed civil settlement will be covered by existing provisions. Also, the bank will take a $1.44 billion incremental charge in 2018’s second quarter to cover the rest.

The accord would give a resolution to a major issue that has weighed on the company’s share price and complicated the UK government’s plan to sell down its more than 70 percent stake in the bank.

“Milestone” Deal

RBS Chief Executive Ross McEwan called the deal a “milestone.”

“Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer,” he said in a statement.

The U.S. Attorney’s Office in Massachusetts, which led the probe, confirmed it had reached an agreement in principle with RBS that would resolve potential civil claims related to mortgage-backed securities that were issued from 2005 to 2008.

“Further details remain to be negotiated, however, before a formal agreement can be reached,” the office said.

Mortgage-Backed Securities

The implosion of markets for risky residential mortgage-backed securities and related derivatives contributed to the 2008 global financial crisis and prompted a series of investigations by authorities including the Justice Department.

The Justice Department had previously settled with banks including Citigroup, Deutsche Bank, JPMorgan Chase, Credit Suisse, Morgan Stanley, Goldman Sachs, Bank of America and Barclays.

The U.S. Attorney’s Office in Massachusetts had also been conducting a criminal investigation into RBS and former employees who were involved in structuring and selling the securities.

But the settlement that RBS and the office disclosed on Thursday was only civil in nature, signaling no criminal charges were probable to result.

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