Royal Bank of Scotland Group PLC has agreed to pay $4.9 billion in a settlement with the U.S. Department of Justice over its role in the misselling of toxic mortgage-backed securities in the run-up to the financial crisis.
In a statement out on Thursday, RBS said it has reached a civil settlement in principle with the U.S. to resolve a long-running investigation inked to its issuance and underwriting of U.S. residential mortgage-backed securities between 2005 and 2007.
The bank, which is 71% owned by the U.K. government, said $3.46 billion will be covered by existing provisions and it will take a charge of $1.44 billion in the second quarter. The proposed settlement is subject to the DOJ and RBS entering into a legally binding agreement.
RBS Chief Executive Officer Ross McEwan said the settlement is a “milestone moment” for the bank.
“Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer,” he said.
The penalty was smaller than feared, sending shares of RBS up 4.7% in London trade. U.S.-listed shares of the lender rose 4.3% ahead of the opening bell.
“It’s a happy day for RBS, with the DoJ settlement coming in well below what we had feared. Of the $4.9bn fine, around $3.5bn has already been provided for so the impact on future earnings appears to be at the very low end of expectations. The settlement could easily have been twice as much,” said Neil Wilson, chief market analyst at Markets.com, in a note.
“This removes the last great barrier to the government selling off its stake and we would envisage that the [U.K.’s Chancellor of the Exchequer Philip Hammond] will expedite the disposal of its 71% shareholding,” he added.