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On Thursday, The Royal Bank of Scotland Group plc (RBS - Snapshot Report) announced a settlement with the Securities and Exchange Commission (SEC) worth about $153.7 million. The settlement includes the resolution of claims relating to misrepresentations of documents while selling mortgage-backed securities (MBS) in 2007.

The lodged complaint indicts RBS of presenting modified documents related to the sale of over $2.2 billion in residential mortgage-backed securities (RMBS).

The SEC accused RBS of issuing misleading statements with omissions related to MBS and concealment of risks associated with these securities. The plaintiff claims that the documents used for offering the securities contained fraudulent statements or omissions regarding the guidelines associated with the properties' value and the borrowers' ability to repay their loans. Misinterpretation of these risks led to the investments, which incurred losses at current levels.

Similar actions have been taken against other banking majors, including JPMorgan Chase & Co. (JPM - Analyst Report), Citigroup Inc. (C - Analyst Report) and The Goldman Sachs Group Inc. (GS - Analyst Report). Notably, Goldman agreed to pay $550 million in Jul 2010, while JPMorgan settled charges by paying $153.6 million in Jun 2011 and a further $296.9 million in Nov 2012 to the SEC. Further, Citigroup has agreed to pay $285 million.

Our Viewpoint
Trouble has been brewing for the banks for quite sometime now. A slew of lawsuits have continued for major banks since the financial meltdown. Numerous lawsuits alleging banks of such wrongdoings are expected to tarnish their reputation and financials over time. However, investors and other financial institutions bearing the brunt of these faulty practices are expected to be fairly compensated.

The lawsuit settlement by banks stress on their efforts to resolve all mortgage related issues, and thereby reduce costs over the upcoming period. Moreover, such agreements will likely help revive the economy, and bode well for the company.

RBS currently carries a Zacks Rank #3 (Hold).

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