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RBS fines 'likely to be higher than expected'

RBS fines 'likely to be higher than expected'

Royal Bank of Scotland's (RBS) settlement with the state of New York over mis-selling of financial products prior to the financial crisis could mean the total bill faced by the bank will be higher than previously expected.

RBS, which is majority owned by taxpayers, agreed to pay $500m (£360m) as a settlement for mis-selling. This relates only to activities in the state of New York, with $400m (£288m) going to householders and $100m (£72m) to the state.

RBS set aside £3.2bn ($4.4bn) in its most recent set of accounts to pay fines for mis-selling in the US. It expects a much larger fine from the US Department of Justice.

The products that were allegedly mis-sold are residential mortgage backed securities, a type of bond where individual mortgages are grouped together, or securitised, and sold in packages to investors.

It was the market losing faith in the value of these instruments that precipitated the global financial crisis.

But according to Ian Gordon, banks analyst at Investec, the size of the settlement with New York state indicates that the final cost to the company of its US regulatory issues could be higher than the £3.2bn that has been set aside.

He said the announcement is “relatively small but incrementally negative news, and, I’d suggest, a higher cost of settlement than consensus was implicitly expecting”.   

RBS shares are £2.59, less than one per cent lower today than prior to the announcement of the settlement.

David.Thorpe@ft.com