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

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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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FTSE On An Uptick; RBS Fails Stress Test

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The UK stock index finished with an uptick on Thursday, with oil-backed equities soaring in expectations of a successful OPEC production cut deal. On the other hand, after failing the stress test given by the Bank of England, the stocks of the Royal Bank of Scotland PLC dropped.

The FTSE 100 was up 0.6 percent at 6,811.95 following a drop of 0.4 percent on Tuesday, its second consecutive decline.

As trading wraps-up for November, oil and banking industries gain the center stage Wednesday which is anticipated to set the FTSE 1000 on a monthly decline of around 2 percent. Following five months of gains, this might become the index’s first monthly loss.

OPEC Outlook Lifts

International benchmark US West Texas Intermediate crude prices leaped 3.5 percent, while Brent crude surged 4 percent, after reports of OPEC Secretary General Mohammad Barkindo confirming that the international oil cartel is sure to reach a production-cut deal on Wednesday in their official meeting in Vienna.

Stakes of oil producers like BP PLC and Royal Dutch Shell PLC accelerated gains. Both stocks inched higher, with 2.2 percent and 3 percent, respectively.

The OPEC deal aims to address the current international oil supply glut that has been sending prices downward for the past two years. The first proposal was to cut the group’s oil output by above a million barrels a day, or around 1 percent of the world’s supply.

Stress Test Failure

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With its failure in the tougher stress test for systemic UK banks, Royal Bank of Scotland made a 1.9 percent slump, off session lows. Now they must come up with an improved plan to generate capital, Bank of England stated Wednesday. RBS ought to come up with around £2 billion ($2.5 billion) in capital.

The stress test also disclosed capital insufficiencies at Standard Chartered PLC and Barclays PLC, but these banks are not required to submit new capital plans since they’ve already carried out their own actions to strengthen their capital, the BOE disclosed in a statement.

Standard Chartered stocks were down 0.4 percent and Barclays stakes had not much movement at £2.14 each.

“The key take away from the report is that the outlook for financial stability is challenging, Brexit and high levels of household debt have been cited as the key reasons for this,” said City Index research director Kathleen Brooks in a note.

“On the positive side, the BOE said that the U.K. is well able to finance its huge current account deficit, and the banking system, although not perfect, is in a position to support the U.K. economy, even in a severely stressed scenario,” she added.

Late Tuesday, the pound changed hands at $1.2479, down from $1.2503, in New York.

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