Royal Bank of Scotland Fined $4.9B for MBS Suit Settlement
The Royal Bank of Scotland Group plc RBS, headquartered at Edinburgh, the U.K, will pay $4.9-billion (£3.62 billion) as settlement for the resolution of the U.S. Department of Justice probe, Reuters has reported. The bank had been charged for misguiding investors in sale of mortgage-backed securities (MBS) prior to the financial crisis.
The Probe
The investigating department, the U.S. Attorney's Office in Massachusetts, entered into an agreement in principle with Royal Bank of Scotland for resolving civil claims in May 2018. These claims were associated with MBS sold from 2005 to 2008. "Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default," Andrew E. Lelling, U.S. Attorney for the District of Massachusetts, noted in a statement.
Post the financial crisis of 2008, regulators, including the Justice Department, have ramped up efforts to penalize financial entities for wrongdoings and misrepresentation of facts while selling investment products.
Royal Bank of Scotland has been combating several litigation issues related to MBS. However, the aforementioned settlement includes only civil penalties and no criminal charges. "This settlement holds RBS accountable for serious misconduct that contributed to the financial crisis," mentioned Acting Associate Attorney General Jesse Panuccio, in a statement.
Per the source, though RBS did not admit any wrongdoing, it was content with the settlement.
Similar Cases
The bank, in recent months, has settled similar cases for being probed by the state attorneys general of California and New York, for $125 million and $500 million, respectively.
In July 2017, RBS agreed to settle a lawsuit by paying $5.5 billion that accused it of misrepresenting facts pertaining to MBS by the Federal Housing Finance Agency.
Previously, in September 2016, RBS had agreed to the resolution of claims over the MBS sold to credit unions by paying $1.1 billion. The announcement was made by the U.S. National Credit Union Administration.
The Justice Department had also entered similar settlements with other banks, including Citigroup C, Deutsche Bank DB and JPMorgan JPM.
In Conclusion
We believe all these settlements indicate the bank’s efforts to get past the legal headwinds and concentrate on the improving operational efficiency. Moreover, the recent announcement related to resumption of paying dividends is expected to act as a tailwind.
In six months’ time, the company’s share price has declined 21.6% on the NYSE as compared with the 15.2% fall recorded by the industry.
Royal Bank of Scotland currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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