RBS Agrees on $5.5 Billion Settlement over Mortgage-Backed Securities Charges

Royal Bank of Scotland (RBS) has agreed to pay $5.5 billion to settle lawsuits filed in US courts by the Federal Housing Finance Agency (FHFA) accusing the bank of mis-selling billions of dollars in mortgage-backed securities before the global financial crisis.

In exchange for dismissing one of the two major investigations, which were filed by the FHFA in its capacity as conservator for Fannie Mae and Freddie Mac, the Edinburgh-based lender will pay a fine that exceeds what analysts expected – $3.5 to $5 billion was the accepted estimate for RBS to settle the case.

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The suit against RBS is part of a multisuit campaign against major banks, which allegedly did not disclose problems with the mortgage-backed securities that would ultimately cause major losses.

The FHFA launched mortgage-backed securities-related suits against Barclays Bank PLC, Citigroup Inc., Credit Suisse AG, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG and several other banks. Of the 18 suits filed in 2011, it has already fined some of these banks $17.87 billion, including $5.83 billion from Bank of America Corp and $4 billion from JPMorgan Chase & Co.

RBS Chief Executive Ross McEwan said in a statement that this settlement represents an important step in helping restore stability to the mortgage market and “resolving one of the most significant legacy matters”.

RBS issued a statement saying the settlement was expected to reduce its third-quarter income and it will record a charge of 151 million pounds in next month’s result related to the fine.