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RBS said to mull multibillion-dollar charge over US mortgages

Friday, January 20, 2017 - 00:25

[LONDON] Royal Bank of Scotland Group Plc is considering taking a multi-billion dollar charge in the fourth quarter for a US mortgage securities probe, that would give an indication of the size of the full settlement, according to people with knowledge of the matter.

The UK taxpayer-owned lender could base a provision on Deutsche Bank AG's US$7.2 billion settlement and Credit Suisse Group AG's US$5.3 billion accord with the US Justice Department, said the people, who asked not to be identified because the details are private.

The Edinburgh-based bank is among the final few global lenders yet to settle in a years-long probe that's garnered more than US$50 billion in penalties for the DOJ since it began investigating the pre-crisis sale of mortgage bonds. Before taking a provision, RBS would need approval from its non-executive board and external auditors, according to a person with knowledge of the matter. RBS must also consider that President Elect Donald Trump may make changes at the DOJ that could affect banking industry penalties, the person said.

"In light of recent US DOJ settlements with other banks, we see the possibility that RBS will book a significant provision as early as the fourth quarter," Goldman Sachs Group Inc. analysts, led by Martin Leitgeb, wrote in a note to clients on Monday. RBS will probably face a US$3.8 billion DOJ settlement in total, according to the average estimate of five other analysts surveyed by Bloomberg News.

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RBS could take a US$3.3 billion conduct and litigation charge, driven by the US probe, Citigroup Inc analysts led by Andrew Coombs wrote in a note to clients last month. While the bank has about £9 billion(S$15.77 billion) of provisions for regulatory and legal matters on its balance sheet, it will probably need more to cover residential mortgage-backed securities settlements and associated legal costs, according to analysts. The bank is scheduled to report full-year earnings on Feb 24.

Senior RBS executives are said to favor a charge in the fourth-quarter because the bank is on-track for a 2016 net loss. And making such a provision before a settlement is reached would reduce the impact on financial performance this year, the people said.

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