RBS confirms £6.7bn provision for likely penalty from US regulators

26th Jan 2017 07:15

(ShareCast News) - Royal Bank of Scotland has confirmed it will take a further £3.1bn provisions to pay off a looming penalty in the US for its sale of residential mortgage-backed securities in the run up to the financial crisis.RBS said on Thursday that it has set aside a total of £6.7bn, which would reduce its tangible net asset value per share at 30 September 2016 by 27p to 311p.The bank, which is 72% owned by the British taxpayer, is facing civil and criminal investigations from the US Department of Justice, which recently agreed a $7.2bn penalty with Deutche Bank for its own sales of residential mortgage-backed securities."Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees," said RBS chief executive Ross McEwan.RBS said the its core-tier-1 capital ratio was reduced by 135 basis points to 13.6% by the provisions but it assured that it did not directly impact the bank's distributable reserves.Analysts at UBS felt, having talked to investors, that buy-side consensus for the DoJ charge is in the region of £4-4.5bn, so it expected the news to be "taken positively".Indeed, shares in RBS were up 4.6% to 237.9p just after 1000 GMT on Thursday.Laith Khalaf at Hargreaves Lansdown said the announcement gave the market an additional steer as to what the cost of US litigation may be."The fact RBS shares rose on the back of the news shows the market welcome the additional step towards closure on this issue, though the actual cost of litigation may well come in ahead of what RBS has so far put aside."However expectations over the size of the settlement have been lowered since the Department of Justice shocked markets last year by suggesting that Deutsche Bank may be on the hook for a $14bn for similar misdemeanours; in the end the cost came in at $7.2bn."