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RBS Staring At Fine Of Up To $12 billion In DOJ Settlement

Royal Bank of ScotlandBritish banking major the Royal Bank of Scotland (RBS) is likely to be fined as much as $12 billion (£9.6 billion) in order to settle the allegations of mis-selling that it faces in the United States.

The charges relate to improper practices adopted by the bank for selling residential mortgage-backed securities (RMBS) prior to the financial crisis in 2008. The bank has not made provisions for settling these charges with the U.S. Department of Justice (DoJ). UK Financial Investment (UKFI) a national body that handles taxpayers’ stakes in companies has detailed the size and impact of a possible settlement with the DOJ.

James Leigh-Pemberton, the chairman of UKFI told the Treasury Select Committee that based on the fine amount being quoted in negotiations between Deutsche Bank and the DOJ for similar charges, RBS faces a fine anywhere between $5 billion and $12 billion. Negotiations between the DOJ and Deutsche Bank have started at a fine of $14 billion. RBS is known to have sold far more RBMS than Deutsche Bank, causing analysts to predict a bigger fine for RBS.

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Leigh-Pemberton stated that the size of the fine was entirely speculative and was purely based on analyst’s estimates since there was no clarity currently on the matter. He also pointed out that due to the uncertainty of the fine public interest in the stock was poor, making it difficult for the government to sell a meaningful portion of its stake.

UK Chancellor Philip Hammond had cited the same reason for dropping all immediate plans for selling the government’s stake in the troubled bank. Hammond has stated that no sale was being contemplated until the bank’s dispute with DOJ was resolved as well as its problems with its subsidiary Williams & Glynn.

UK taxpayers have a stake of 73 percent in RBS, arising as a result of the bailout package received by it in the aftermath of the 2008 crisis. RBS shares are currently at around 208p – far lower than the 502p average price that was paid by the government.

Market experts are expecting the bank to set aside further provisions in the range of £4.2 billion and £9 billion to handle possible fines and legal fees incurred over the next three years. So far the bank has put aside £3.8 billion to address any fines or settlements for RMBS. It has also kept aside several billions for other charges of misconduct. RBS is expected to start negotiations with the DOJ next year so the uncertainly over the issue is expected to continue.


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