Royal Bank Of Scotland To Face $12B Fine For RMBS Scam
Zacks Investment Research | Nov 20, 2016 10:03PM ET
Shares of The Royal Bank of Scotland Group (LON:RBS) plc (TO:RBS) fell nearly 2% on the NYSE in the last trading session, amid market speculation of a potential fine to be paid by the bank to the U.S. Department of Justice (DoJ). The bank is under investigation by the DoJ for allegedly mis-selling residential mortgage-backed securities (RMBS) in the run-up to the 2008 financial downturn.
Per Executive Chairman of U.K. Financial Investments (UKFI), James Leigh-Pemberton’s statement to the Treasury Select Committee, "It could be $5 billion, it could be $12 billion, and based on what happened to Deutsche Bank (DE:DBKGn) it could be more.”
Established at the end of the 2007−2008 financial crisis, UKFI is the organization that manages the government’s stake of 73% in the Royal Bank of Scotland. The bank was assisted with a $57 billion government bailout during the financial crisis.
In addition, Pemberton laid out the probable financial impact of the latent fine on the bank’s share price and financial position, including the several lawsuits currently faced by the company. Notably, a fine of $12 billion would correspond to 1.5% of the bank’s total assets and 54.1% of annual revenue, as indicated by a source release. Further, Pemberton noted that the range of the fine is based on “market estimates” and the final settlement is still unknown. The negotiation between the regulator and the bank over the penalty is expected to begin in 2017.
The potential fine would mirror Deutsche Bank AG’s (NYSE:DB) situation, which is negotiating a similar probe by the DoJ to settle a $14 billion penalty against charges of unfair mortgage-backed securities sale by the German bank. The allegation has raised concerns about the future prospects of the bank.
Further, the regulator is preparing similar criminal charges against executives at JPMorgan Chase & Co. (NYSE:JPM) for alleged sale of faulty mortgage securities prior to the 2008 financial crisis. (Read More: Zacks Investment Research
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