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LONDON (Alliance News) - Shares in Royal Bank of Scotland Group PLC rose on Thursday, as investors anticipated a GBP3.10 billion provision covering securities mis-selling may signal a lower settlement than feared.
The state-backed lender said Thursday it will take the provision, for litigation and investigation over alleged mis-selling of US residential mortgage-backed securities, in its fourth-quarter results for 2016.
Shares in RBS were up 4.9% at 239.30 pence Thursday, the top performer in the FTSE 100 index.
Investors were heartened by the thought that the provision may provide a sign as to the expected settlement with the US Department of Justice over the mis-selling scandal, although RBS warned that "further substantial additional provisions and costs may be recognised".
Analysts had previously suggested that RBS could face up to a USD12.00 billion fine from the US DoJ over the mis-selling scandal. However, a series of settlements with other European banks over similar cases may suggest a lower figure.
After the DoJ initially demanded USD14.00 billion from German lender Deutsche Bank in September, it eventually agreed to a USD7.20 billion deal. A USD5.28 billion settlement was also agreed by Credit Suisse Group.
Meanwhile, RBS's London-listed peer Barclays PLC said in December it intends to fight a civil lawsuit from the DoJ over securities mis-selling claims.
Analysts speculated that both the string of settlements and Barclays' willingness to fight the claim were due to a belief Donald Trump will take a more lenient attitude to banks than Barack Obama's administration.
Even if RBS does face a larger settlement than this provision, a potential end to the lender's repeated conduct charges will boost the bank. This set-aside, RBS's total provisions over the mis-selling claims amounts to GBP6.70 billion, a major factor in its eight straight years of reporting losses, which is expected to continue for 2016.
RBS will release its full-year results for 2016 on February 24.
Uncertainty over the size of the settlement with the DoJ has been cited as a major reason for the delay in the government's efforts to sell its 72% stake in RBS. In November, James Leigh-Pemberton, chairman of UK Financial Investments, which manages the government's stake in RBS, told MPs investors couldn't work out how much the bank's shares should be worth due to the threat of the fine.
"Putting our legacy litigation issues behind us, including those relating to residential mortgage-backed securities, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees," said Ross McEwan, chief executive officer of RBS, on Thursday.
By Adam Clark; adamclark@alliancenews.com
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