Royal Bank of Scotland (RBS) is paying $1.1 billion (£850 million) to settle two claims it mis-sold “toxic” mortgage security products to US credit unions in the US in the run-up to the 2008 financial crisis.
RBS’ US subsidiary sold mortgage-backed security products to two credit unions — US Central Federal Credit Union and Western Corporate Federal Credit Union — in the run-up to the financial crisis.
The products were so-called “toxic” mortgage-backed securities and when the housing bubble burst, both credit unions failed. RBS admits no wrongdoing under the terms of the settlement.
RBS is paying the sum to the National Credit Union Administration in the US and says the settlement is “substantially covered by existing provisions.” The state-owned bank’s provisions were $3.8 billion (£2.9 billion) at the end of June, according to the BBC.
The bank is still facing mortgage-backed security claims from the US Federal Housing Finance Agency and an investigation by the US Department of Justice. RBS says in a statement that: “litigation and investigations may require additional provisions in future periods that in aggregate could be materially in excess of the provisions existing as of 30 June 2016.”
Here is the full statement from RBS on the settlement, sent to Business Insider over email:
The Royal Bank of Scotland Group plc (RBS Group) has reached a final settlement with the National Credit Union Administration Board to resolve two outstanding civil lawsuits for US$ 1.1 billion (£846 million). The settlements, involving its subsidiary RBS Securities Inc., relate to the two residential mortgage-backed securities (RMBS) cases (asserting claims on behalf of US Central Federal Credit Union and Western Corporate Federal Credit Union), most recently disclosed in RBS’s 2016 Interim Results Announcement (“2016 Interim Results”). The settlement amount is substantially covered by existing provisions as of 30 June 2016 and will have no material impact on the RBS Group’s CET1 ratio.
RBS continues to litigate various other RMBS-related civil claims identified in its disclosure, including those of the Federal Housing Finance Agency, and to respond to investigations by the civil and criminal divisions of the U.S. Department of Justice and various other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force (including several state attorneys general). As previously stated, RMBS litigation and investigations may require additional provisions in future periods that in aggregate could be materially in excess of the provisions existing as of 30 June 2016. Please see RBS’s 2016 Interim Results for further details.
RBS will publish its Q3 2016 results on 28 October.