Banking giant to fork over $4.9 billion to settle mortgage-bond probe

An international banking giant will fork over nearly $5 billion to settle a federal probe into its sale of mortgage-backed securities during the run-up to the 2008 financial meltdown.

Royal Bank of Scotland has agreed to pay $4.9 billion to settle Justice Department claims that it misled investors who bought the securities, according to a report by The Los Angeles Times.

This is the second time this year that RBS has written a massive check to settle claims it knowingly sold shoddy mortgage bonds. In March, the bank agreed to fork over $500 million to the state of New York to end a state probe into its RMBS sales. In 2017, it settled a similar case with the Federal Housing Finance Agency with a $5.5 billion payment.

News of the settlement actually appears to have helped RBS, which was bailed out by British taxpayers after it collapsed a decade ago. The British government required RBS to settle all US claims before it would sell its 72% stake in the company, the Times reported.

The agreement with the Justice Department will “allow us to deal with this significant remaining legacy issue, and this is the price we have to pay for the global ambitions pursued by this bank before the crisis,” Chief Executive Ross McEwan said. “Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer.”

Some analysts had forecast that the settlement would be as much as $12 billion, according to the Times. After the much lower $4.9 billion settlement was announced, RBS shares rose by up to 6.6% in London trading.

“This will help the government sell a much cleaner bank,” McEwan said.

RBS had already set aside $3.46 billion to cover a possible settlement, and will take an additional $1.44 billion charge in the second quarter, the Times reported.

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