RBS will be hit by 'substantial' litigation costs and fines in 2015

The boss of the Royal Bank of Scotland just revealed that the British lender will be hit by fines of a “substantial” proportion in 2015.

Ross McEwan said on an analyst call today that “we are anticipating some challenging outcomes and clearing these hurdles is a vital aspect of our plan” after the group reported a £446 million ($US687 million) loss in the first quarter this year.

RBS spent £856 million ($US1.31 billion) on litigation costs and £453 million ($US698 million) on restructuring the bank.

Out of the litigation charges, £334 million ($US515 million) was used to cover the costs of investigations related to the alleged manipulation of the currency markets.

Another £257 million ($US397 million) was also set aside to cover the mis-selling of packaged bank accounts while another £100 million ($US154 million) went towards the mis-selling of Payment Protection Insurance.

McEwan said prosecution over the sale of residential mortgage-backed securities (RMBS), which are financial products that were partially to blame for the credit crisis, will also pose a costly problem for the bank.

“We can’t be clear [on when the litigation issues will be resolved],” said McEwan on the call. “But we know that the costs will be substantial. Ideally we’d like to get those [issues] out of the way by the end of 2015 but that depends on the court dates and when authorities talk to us.”

“On the FX investigations, it is a complex discussion involving a number of banks with the Department of Justice. However we do expect to see newsflow on this issue this quarter and of course we will provide provision.

“On RMBS, as you know, there were 18 or so banks settling with the Federal Housing Finance Agency and now it’s just us and Nomura to go. Nomura seems to be engaged in discussions but our court date is in 2016. However, we would hope to settle a substantial part of the RMBS issue this year.”

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