The Royal Bank of Scotland could be forced to pay more than $12bn (£9.7bn) to settle claims in the US that it mis-sold toxic mortgage securities in the run-up to the financial crisis, according to UKFI, the body which manages the taxpayers’ stake in the lender.
James Leigh-Pemberton, the chairman of UK Financial Investments (UKFI), told the Treasury Select Committee that the potential fine imposed on RBS by the US Department of Justice (DoJ) “might be $5bn, it might be $12bn”. He continued: “Based on what was said to Deutsche Bank it could be more”.
The German lender was plunged into turmoil in September after it emerged that it had been asked by the DoJ for $14bn to settle similar claims about mortgage-backed securities sales before the credit crunch, although the bank is now attempting to negotiate down the sum.
Mr Leigh-Pemberton said that UKFI did not “have any certainty” about the scale of the looming RBS fine and that the range he had estimated was based on “market speculation”.
However, he added that the uncertainty about the size of the penalty meant investor demand to buy RBS shares was “not deep enough to enable a sale in any meaningful size”.
RBS is not expected to start detailed negotiations with the DoJ until next year, meaning investor worries about a settlement will hang over the lender for some time. The British bank sold more of the securities than Deutsche Bank, suggesting it could be hit with a bigger fine.
RBS remains 73pc-owned by the taxpayer and Mr Leigh-Pemberton and Oliver Holbourn, the chief executive of UKFI, were pressed by MPs on the Committee about when a sale of its shares would restart.
The Government has sold RBS stock only once, in August last year, and did so at loss. The bank's weak share price since has deterred it from selling more.
Philip Hammond, the Chancellor, said last month that the stake would not be cut until both the DoJ fine and RBS’s problems with its Williams & Glyn unit are resolved, a stance that was reiterated by the two UKFI officials today.
RBS is being forced by the European Commission to sell Williams & Glynn, a network of 314 branches, as a condition of its £46bn bailout in 2008, and must fully divest the business by the end of next year.
However, RBS’s antiquated computer systems have meant that separating out W&G has become an arduous task and the state-backed lender has been struggling to offload the branches for seven years.
Clydesdale and Santander, have both submitted bids for W&G that are currently being weighed by RBS.
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