The UK government will sell a stake in Royal Bank of Scotland (RBS), worth around £3bn after the bank settles a significant fine with US authorities for mis-selling mortgage backed securities, as reported by the Financial Times.
RBS is currently working on clearing its largest legacy issue over the way it packaged and mis-sold residential mortgage-backed securities (RMBS) during the financial crisis.
Once the state-backed lender remedies the situation with the US Department of Justice (DoJ), the Bank is expected to return to making a profit.
US Federal Housing Finance Agency (FHFA)
During the pre-crisis era, RBS mis-sold mortgage bonds to US government-backed loan firms, Fannie Mae and Freddie Mac, which make up the FHFA.
In July 2017, RBS reached a settlement with the FHFA to resolve claims in relation to RBS’s issuance and underwriting of approximately £25 billion of residential mortgage-backed securities in the US.
Ross McEwan, RBS CEO, said:
“[The] announcement is an important step forward in resolving one of the most significant legacy matters facing RBS and is further evidence of the determination of the bank’s leadership to put our remaining issues behind us.
“This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions.”
Under the settlement, RBS was made to pay £4.2 billion to FHFA.
In April 2017, Philip Hammond, Chancellor of the Exchequer, stated in a speech at the House of Commons that the state-owned bank, Royal Bank of Scotland, could be sold at a significant loss to the UK taxpayer.
Earlier this year, the taxpayer-backed lender reported its ninth straight annual loss after being bailed out for £45.5bn in 2008.
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