The U.K.'s Royal Bank of Scotland (RBS) - Get Report has speared one head of a U.S. litigation hydra with a $1.1 billion settlement over residential mortgage-backed securities it sold before the credit crisis.
The settlement comes less than two weeks after Deutsche Bank (DB) - Get Report was hit with a $14 billion Department of Justice fine for misselling similar securities. But the difference in magnitude between the payouts doesn't preclude deeper litigation hardship for RBS down the line and instead highlights the transatlantic menace posed by U.S. authorities for a multitude of European lenders, also including Credit Suisse (CS) - Get Report and UBS. (UBS) - Get Report
The Edinburgh lender, which has been in restructuring mode since a $45.5 billion ($59.2 billion) state bailout during the credit crisis, said it reached a final settlement with the National Credit Union Administration Board to resolve two civil lawsuits. The claims were brought by the U.S. US Central Federal Credit Union and Western Corporate Federal Credit Union.
"The settlement amount is substantially covered by existing provisions as of 30 June 2016 and will have no material impact on the RBS Group's CET1 ratio," RBS said.
It is still fighting various other civil claims related to RMBS, including from the Federal Housing Finance Agency, and it remains under investigation by the civil and criminal divisions of the Department of Justice and other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force.
In the U.K. it also faces a class action law suit over a 2008 rights issue before its bailout, and ongoing payouts for customers who allege they were "missold" payment protection insurance, among other so-called legacy conduct expenses.
"As previously stated, RMBS litigation and investigations may require additional provisions in future periods that in aggregate could be materially in excess of the provisions existing as of 30 June 2016," RBS said.
Royal Bank of Scotland shares were recently up 1.3% at 176.80 pence in early trading in London, making them the lead banking sector gainer on the FTSE 100.
Uncertainty about the litigation outlook had contributed to a 10% drop in RBS' shares since the eve of its Aug. 5 first-half results, when it said litigation and conduct provisions totalled £7.5 billion. Of these £5.17 billion were set aside for legal and regulatory matters. It took £1.32 billion of new litigation and conduct provisions in the first half.
The bank continues to wind down and sell assets to simplify its business, though CEO Ross McEwan admitted at a conference on Tuesday it was struggling to sell around 300 U.K. branches dubbed Williams & Glyn. It needs to offload the branches to fulfill a condition of the European Commission's approval of the state aid granted by the U.K. government and they should also net the bank comfortably more than £1 billion.
However, the frontrunner bidder, Banco Santander, walked away from discussions earlier this month for the second time. If RBS can't sell the branches the EC could force the British government to appoint a trustee to offload the operations at no minimum price, or ultimately make the bank repay the state aid.
RBS' common equity Tier One capital ratio was 14.5% at the end of the first half.