Royal Bank of Scotland Group agreed to pay $1.1 billion to settle the first of three major U.S. mortgage-backed securities probes the bank must overcome before it can resume dividend payments.
The accord between the British lender and the U.S. National Credit Union Administration closes 2011 lawsuits filed in California and Kansas on behalf of two corporate credit unions, the NCUA said in a news release Tuesday. The deal is among the largest in a series of settlements in which banks have paid hundreds of millions over accusations stemming from sales that contributed to the collapse of corporate credit unions after the 2008 financial crisis.
Looming settlements for European banks over the pre-crisis sale of mortgage bonds in the U.S. have roiled markets in recent weeks and brought concerns about the health of the region's lenders back to the boil. Deutsche Bank AG reach a record low this week after the U.S. Department of Justice requested $14 billion to settle its probe into the lender, dragging down shares in RBS, which is awaiting its turn for negotiations.
The NCUA "intends to stay the course in fulfilling its statutory responsibilities to protect the credit union system and to pursue recoveries against financial firms that we maintain contributed to the corporate crisis," Chairman Rick Metsger said. The credit-union industry regulator said it has recovered more than $4 billion in related settlements.
Edinburgh-based RBS hasn't admitted fault in this or an earlier agreement to pay $129.6 million to resolve similar lawsuit relating to two other credit unions. The lender said in a statement Tuesday that the settlement cost was "substantially" covered by its provisions and won't have a material impact on the bank's capital. RBS still faces mortgage securities disputes involving the Federal Housing Finance Agency and the Justice Department, and may need to set aside money "materially in excess" of existing provisions, it said.
Settling U.S. mortgage-backed securities probes "is the big one for us as a bank," Chief Executive Officer Ross McEwan said at a conference in London organized by Bank of America Merrill Lynch on Tuesday. The CEO said he's in talks with the FHFA over a deal, though is yet to enter formal discussions with the Justice Department.
"I would like to clean these up as quickly as we possibly can, but a lot of the timing is not in my gift," McEwan said at the conference. The 72% government-owned bank has cited the settlements as an obstacle to resuming dividend payments for the first time since the financial crisis.
For the NCUA, the payouts -- including UBS Group AG's new agreement over Western Corporate Federal Credit Union and U.S. Central Federal Credit Union -- are directed to a fund meant to handle claims stemming from the failures of five institutions that served the rest of the credit-union industry.
In other settlements late last year, the NCUA got $325 million from Barclays Plc, $225 million from Morgan Stanley and $53 million from Wells Fargo. The agency is still pursuing Credit Suisse Group AG and UBS with similar complaints, it said.