Ulster Bank parent reaches $4.9bn settlement with US Department of Justice
Agreement follows investigation into RBS's issuance and underwriting of US residential mortgage-backed securities
Ulster Bank’s parent the Royal Bank of Scotland (RBS) has reached a civil settlement with the US Department of Justice for $4.9bn (€4.1bn).
The settlement, agreed in principle, is in respect of a Department of Justice investigation into RBS's issuance and underwriting of US residential mortgage-backed securities ("RMBS") between 2005 and 2007.
Of the $4.9bn, $3.46bn will be covered by existing provisions, with an incremental charge of $1.44bn in the second quarter of 2018, a statement from RBS said.
Commenting on the agreement, Ross McEwan, chief executive of RBS, described the settlement as a "milestone moment" for the bank.
"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," Mr McEwan said.
"Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer."
The pro forma impact of the settlement on RBS's 31 March 2018 common equity tier 1 ratio (a measure of a bank’s financial strength) is a reduction of approximately 50 basis points and a reduction of 9p on 31 March 2018 fully diluted tangible net asset value per share.
Adjusting for the combined impact of both the RMBS settlement and the pension deficit contribution of £2bn announced on 17 April, the quarter one 2018 pro forma common equity tier 1 is 15.1pc and fully diluted tangible net asset value is 274p.
The proposed settlement is subject to the Department of Justice and RBS entering into a legally-binding agreement, and there can be no assurance that the parties will agree on the final terms of any proposed settlement, RBS said.
The incremental charges will be booked in NatWest Markets on a consolidated basis and RBS will retail its guidance on a NatWest Markets consolidated end state (post ring-fencing transfers) common equity tier 1 target of 14pc, as per the outlook statement of its 2017 Annual Report and Accounts.
Separately, as at 31 March 2018, RBS held provisions of $800m for other legacy RMBS matters.