Mortgages  

RBS settles with US govt over mortgage mis-selling

RBS settles with US govt over mortgage mis-selling

The Royal Bank of Scotland (RBS) has resumed dividend payments after reaching a settlement of £3.71bn with the US Department of Justice to end the investigation into the bank’s sales of US residential mortgage backed securities.

The company said it will pay the settlement from existing resources, and the previously announced intention to pay a dividend has been confirmed, with a payment of 2p per share due to shareholders.

The RBS settlement announced this morning (15 August) relates to the bank’s activities in that market in the years 2005 to 2007.

Residential Mortgage Backed Securities consist of thousands of home loans bundled together and sold on to third parties. 

The perception of those assets prior to the financial crisis was that they deserved to be classified as low risk because there were so many individual mortgages it was viewed that the risk was diversified enough to offer investors protection.  

It was concerns about the value of assets in the whole of the mortgage backed securities market that precipitated the 2007 credit crunch and led to the collapse of financial institutions such as Lehman Brothers.

The payment was expected and had been recognised in the group’s accounts announced on 3 August.

Ross McEwan, RBS chief executive, said: "This settlement dates back to the period between 2005 and 2007. There is no place for the sort of unacceptable behaviour alleged by the Department of Justice at the bank we are building today."

david.thorpe@ft.com