RBS Closes In On $4.5 Billion Over U.S. Mortgage Bond Settlement


Royal Bank of Scotland (RBS) is closing in on a multi-billion pound settlement with a U.S. regulator over the mis-selling of toxic mortgage bonds that will get rid of one of the long-standing obstacles to the government returning the lender to the private sector.

It was reported that RBS and the Federal Housing Finance Agency are on the verge of agreeing a deal that could cost the bank as much as $4.5 billion (£3.5 billion), allowing the bailed out lender to put some of its mortgage backed securities legacy behind it.

Such an agreement would draw a line under one of RBS’ largest legal challenges and potentially pave the way for the government selling down its stake. Apparently, the discussions made progress sufficiently far to leave both sides hopeful that an announcement can be officially made in the next few weeks.

RBS is the last of 18 banks to settle with the FHFA, although a number of other banks are also yet to settle with the DoJ, including Barclays, which is involved in a legal battle with the agency.

The settlement with the FHFA relates to the mis-selling of mortgages to the US government-backed loan firms Fannie Mae and Freddie Mac prior to the 2008 financial crisis, when RBS was among the biggest players on Wall Street.

RBS executives are keen to come to an agreement as soon as possible as they continue their efforts to return the bank, which is more than 70%-owned by British taxpayers to profit for the first time since 2007.

However, a settlement with the FHFA will not mean that RBS is completely out of the woods yet as it must still face formal settlement talks with the US Department of Justice about big penalty related to residential mortgage-backed securities, which are expected to cost it substantially more than any deal with the FHFA.

Meanwhile, RBS shares went up 1.7% to £254.35 on Tuesday after the news. It opened at £252.00, with a session high of £258.00 and a session low of £251.30, with a market capitalization of £30.19 billion.

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