RBS Sets Aside $3.8 Billion for U.S. Mortgage Settlement -- 3rd Update

By Max Colchester 

Royal Bank of Scotland Group PLC on Thursday put aside an extra $3.8 billion to cover future settlements with U.S. authorities over the sale of toxic mortgage-backed securities before the financial crisis, offering investors hope that the British bank is getting closer to resolving one of its last major crisis-era litigation headaches.

The provision will likely push the 72% U.K. government-owned bank to one of its largest annual losses since its taxpayer bailout in 2008, further denting the bank's prospects for paying dividends in the medium term.

RBS said the timing of any settlement with U.S. authorities remained "uncertain." The extra provision, which will be taken as part of the bank's full-year earnings next month, will take the total the bank has put aside to cover the potential penalties to $8.3 billion and will reduce its Tier 1 capital ratio to 13.6%. Shares in the bank traded 3% higher in afternoon trading in London.

The Justice Department is probing criminal and civil issues related to RBS's sale of mortgage bonds at the height of the U.S. housing boom. The additional provision is mostly to cover that investigation, RBS added. The bank had previously set aside $5.6 billion, in large part to cover settlements with the Federal Housing Finance Agency and other U.S. authorities.

Late last year Deutsche Bank AG and Credit Suisse Group AG settled with the Justice Department over their role in the sale of mortgage-backed securities. Barclays refused to do so and was sued by the Justice Department.

"You do take some guidance out of that when you make your own provisions, " RBS Chief Executive Ross McEwan said. However, the bank has yet to start active negotiations with the Justice Department. Analysts have estimated RBS's final bill could go as high as $12 billion.

The settlement with U.S. authorities is one of the remaining hurdles RBS must clear before the U.K. government can consider privatizing the bank. The threat of the vast fine has been weighing on RBS's share price for over a year. The bank's management has repeated its desire to settle. However, on Thursday the bank said in a statement there was no guarantee it would do so.

When RBS presents its annual results on Feb. 24. the bank will also outline further cost-cutting measures as its executive team continue to battle to reshape RBS amid low interest rates and a laundry list of litigation issues.

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

January 26, 2017 10:14 ET (15:14 GMT)

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