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Royal Bank of Scotland Settles Mortgage Suits for $1.1B
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The Royal Bank of Scotland Group plc has reached a final settlement with the National Credit Union Administration (NCUA), a U.S. federal regulator of credit unions, to resolve two outstanding civil lawsuits for £846 million ($1.1 billion). The bank has been alleged of mis-selling residential mortgage-backed securities (RMBS) to corporate credit unions, in the run-up to the 2008 financial crisis.
Notably, the settlement with NCUA board is one of the three major issues that The Royal Bank of Scotland is currently facing, relating to the bank’s method of selling RMBS before its $45 billion taxpayer bailout.
Heightened Regulatory Concerns
Apart from these lawsuits, The Royal Bank of Scotland is currently defending 15 civil lawsuits in the U.S. Some of these have been filed by other U.S. regulators, namely Department of Justice (DoJ) and the Federal Housing Finance Agency.
The Royal Bank of Scotland initially expected to resolve its discussions with the DoJ by now. However, the bank has now signaled that this might not happen until next year. In addition, it is facing a multi-billion dollar action from the US Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, in relation to its activities on the run up to the demise of the two government-sponsored enterprises.
Notably, the current payment comes in relation to a prior settlement with The Royal Bank of Scotland in 2015, where the bank had agreed to pay $129.6 million to resolve a similar lawsuit.
Financial Impact
The Royal Bank of Scotland stated that the settlement is substantially covered by the existing provisions, which stood at £3.8 billion ($4.95 billion) as of Jun 30, 2016, and that it will have no impact on the bank’s CET1 ratio.
What’s Next?
The settlement follows only days after Deutsche Bank AG (DB - Free Report) confirmed the receipt of an initial claim for $14 billion from the DoJ, for settling its investigation into mis-selling of mortgage securities by the German bank. These moves by the U.S. regulators indicate that their focus has now shifted to European banks.
Rick Metsger, Chairman of NCUA, said, "NCUA is pleased with today's settlement and fully intends to stay the course in fulfilling its statutory responsibilities to protect the credit union system and to pursue recoveries against financial firms that we maintain contributed to the corporate crisis."
Nonetheless, Ross McEwan, CEO of The Royal Bank of Scotland, stated that the bank is working towards resolving of its various U.S. mortgage security exposures over the remainder of this year and next. Further, he added, “These are going to result in substantial additional conduct provisions and noise, but we remain focused on the task at hand of continuing to build a really good bank for customers and investors.”
Notably, NCUA is still in the process of litigating other banks – including Credit Suisse Group AG and UBS Group AG (UBS - Free Report) – over the sale of such products to corporate credit unions.
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Royal Bank of Scotland Settles Mortgage Suits for $1.1B
The Royal Bank of Scotland Group plc has reached a final settlement with the National Credit Union Administration (NCUA), a U.S. federal regulator of credit unions, to resolve two outstanding civil lawsuits for £846 million ($1.1 billion). The bank has been alleged of mis-selling residential mortgage-backed securities (RMBS) to corporate credit unions, in the run-up to the 2008 financial crisis.
Notably, the settlement with NCUA board is one of the three major issues that The Royal Bank of Scotland is currently facing, relating to the bank’s method of selling RMBS before its $45 billion taxpayer bailout.
Heightened Regulatory Concerns
Apart from these lawsuits, The Royal Bank of Scotland is currently defending 15 civil lawsuits in the U.S. Some of these have been filed by other U.S. regulators, namely Department of Justice (DoJ) and the Federal Housing Finance Agency.
The Royal Bank of Scotland initially expected to resolve its discussions with the DoJ by now. However, the bank has now signaled that this might not happen until next year. In addition, it is facing a multi-billion dollar action from the US Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, in relation to its activities on the run up to the demise of the two government-sponsored enterprises.
Notably, the current payment comes in relation to a prior settlement with The Royal Bank of Scotland in 2015, where the bank had agreed to pay $129.6 million to resolve a similar lawsuit.
Financial Impact
The Royal Bank of Scotland stated that the settlement is substantially covered by the existing provisions, which stood at £3.8 billion ($4.95 billion) as of Jun 30, 2016, and that it will have no impact on the bank’s CET1 ratio.
What’s Next?
The settlement follows only days after Deutsche Bank AG (DB - Free Report) confirmed the receipt of an initial claim for $14 billion from the DoJ, for settling its investigation into mis-selling of mortgage securities by the German bank. These moves by the U.S. regulators indicate that their focus has now shifted to European banks.
Rick Metsger, Chairman of NCUA, said, "NCUA is pleased with today's settlement and fully intends to stay the course in fulfilling its statutory responsibilities to protect the credit union system and to pursue recoveries against financial firms that we maintain contributed to the corporate crisis."
Nonetheless, Ross McEwan, CEO of The Royal Bank of Scotland, stated that the bank is working towards resolving of its various U.S. mortgage security exposures over the remainder of this year and next. Further, he added, “These are going to result in substantial additional conduct provisions and noise, but we remain focused on the task at hand of continuing to build a really good bank for customers and investors.”
Notably, NCUA is still in the process of litigating other banks – including Credit Suisse Group AG and UBS Group AG (UBS - Free Report) – over the sale of such products to corporate credit unions.
Currently, Royal Bank of Scotland carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>