Royal Bank Of Scotland (RBS) has agreed to pay a $4.9 billion (£3.61 billion) civil penalty to close a long running investigation into their financial dealings in America in the lead-up to the financial crisis.
The size of the penalty came as a surprise to many experts who had predicted the final settlement would be much higher. RBS said it has already set aside $3.6 billion in anticipation of the size of the penalty.
The US Department Of Justice (DOJ) says the details have yet to be negotiated before the final deal is done, but RBS chief executive Ross McEwan hailed the deal as ‘a milestone.’
Once the agreement is finalised it will remove a major stumbling block which has been holding up government plans to re-privatise the bank.
RBS is still 71% owned by the British taxpayer after a £45 billion bail-out in 2008 at the height of the financial crisis.
Chancellor George Osborne tried to start the re-privatisation process with the sale of 636 million shares in 2015, but the sale produced a £1.1 billion loss and the government decided to postpone any future sales until the economic climate improved.
In October last year preparations began for a new sale, but Chancellor Philip Hammond said he was reluctant to go ahead until the US issue was resolved.
Commenting on the deal with the DOJ, Mr McEwan said: “Today’s announcement is a milestone moment for the bank.
“Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer.
“Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis.”
At the time of the crash RBS had grown to be the biggest bank in the world by taking over 26 other companies in seven years. In Autumn 2007 it posted an operating profit of £10.3 billion – the equivalent of £1 million an hour.
But the disastrous take-over of Dutch bank ABN Amro just a year later was a step too far and led to the collapse of the bank which had to be bailed out by the Labour government.
Biggest in UK history
Experts believe the re-privatisation process with be the biggest in UK history and may take several years.
BBC business editor Simon Jacks said: “The government owns over £20bn worth of shares. That is a colossal amount to sell and will take several years.
“The first sales will be at a loss, but the government will hope that over time, as the huge overhang of shares to sell dwindles and profits continue to rise, the public may get more money back.
“The public though are unlikely to ever recoup the £45bn poured into the biggest banking debacle in UK corporate history.”