Unconfirmed sources have reported that the United States Department of Justice is to fine the Royal Bank of Scotland to an amount upwards of $10 billion, in large part due to the banks role in the financial crisis of 2008.
The bank has decided to come to an arrangement, along with other banks who were implicated by the DOJ as playing a role in the financial crisis of 2008, which affected economies the world over.
The crux of the DOJ’s argument against RBS and the other banks, named by the government body, is that the banks mis sold mortgage securities, despite the banks themselves having full knowledge that the loans would never be repaid.
Another UK bank, that has yet to reach a deal with the Department of Justice is Barclays. The Department of Justice has however decided to sue the Corporation in Brooklyn, New York over it’s failure to reach a deal with the US government over the matter.
The BBC reported the the impeding fine is causing consternation and worry among RBS management and shareholders, that the bank has to now deal with this issue in addtion to the billions it has to pay out to people who were mis-sold payment protection insurance.
RBS itself is loath to offer an estimate as it’s worried it may antagonise the very regulators with whom it is in tense and high stakes negotiations.
It has good reason to be cautious. Deutsche Bank tried to create a consensus around a figure of $5bn for its own settlement, only to see the Department of Justice get the hump and hit them with a bill for $14bn.
That riposte saw Deutsche Bank’s share price tumble as a fine of that size was nearly 85% of the bank’s market value at that time. The two sides eventually settled on a figure of $7.2bn.
RBS had a much bigger share than Deutsche of the sub-prime mortgage market and analysts estimates of the ultimate bill cluster around the low teens of billions. If it is much higher than that, some shareholders think RBS should refuse to settle and instead take the matter to court.
That was the approach taken by Barclays who balked at a figure (thought to be around $5bn) for their comparatively small role in the market, feeling that foreign banks were being disproportionately punished by US regulators compared to American banks. For example, Goldman Sachs was a much bigger player than Barclays in this market and settled for just over $5bn.
A Barclays insider told the BBC: “If the gap between what the DoJ was asking and what we thought reasonable could have been bridged, we would have done it but the gap was just too wide.”