RBS takes further £3bn hit on US mortgage security mis-selling

RBS-Building-2012-700x450.jpgRoyal Bank of Scotland has had to set aside a further £3.1 billion ($3.8 billion) to cover fines and litigation resulting from mis-selling mortgage backed securities in the US.

This takes the total amount the bank has set aside to meet these costs to £6.7 billion ($8.3 billion), however, shares rose by 2 per cent in early morning trading suggesting investors welcome the fact the issue is nearing closure.

Hargreaves Lansdown senior analyst Laith Khalaf says: “The sins of the past still loom large in the present for RBS, and the cost of US litigation is the biggest in a long line of problems besetting the bank at the moment.

“The US Department of Justice is expected to impose a hefty fine on RBS for its part is mis-selling mortgage-backed securities in the run up to the financial crisis. It doesn’t help that the fine will be in dollars, a currency which has risen by 15 per cent against the pound since the EU referendum.

“The fact RBS shares rose on the back of the news shows the market welcome the additional step towards closure on this issue, though the actual cost of litigation may well come in ahead of what RBS has so far put aside.

“However expectations over the size of the settlement have been lowered since the Department of Justice shocked markets last year by suggesting that Deutsche Bank may be on the hook for a $14 billion for similar misdemeanours; in the end the cost came in at $7.2 billion.”

Khalaf adds: ”Today’s announcement gives the market an additional steer, directly from RBS, as to what the cost of US litigation may be. However the additional provisions will take a toll on the bank’s balance sheet, which it was already busy repairing after it failed a Bank of England stress test last November.

“RBS is heading in the right direction, but progress is slow, profitability is elusive, and a return to private ownership is in the long grass.”