RBS still paying for the financial crash

 

Nine years on from the height of the financial crisis and RBS is still paying the price for its grave misdemeanours. In fact the additional £3.1 billion it’s setting aside today is for a fine that goes to the very heart of the practices that brought the global economy to the brink.

It relates to the mis-selling of so-called mortgage-backed securities, which were sold pre-2008 as supposedly premium investments but which in fact turned out to be nothing more than sub-prime loans just waiting to go bust. RBS was one of the biggest players in the market for slicing and dicing these mortgages and repackaging them for sale as new investments across global markets – it was one of the reasons the financial crisis penetrated so deeply the world over.

The US Department of Justice is going after all the banks involved in mis-selling sub-prime and RBS is the last (and biggest offender) on its list. So today – in anticipation of that mega fine – RBS has set aside another £3.1 billion – bringing the total allocated for sub-prime to £6.7 billion.

The chief executive Ross McEwan admitted on a call this morning the bank has no idea whether or not this amount will be enough but they’re certainly hopeful it will be. They only have other fines to go on, notably Deutsche Bank which settled with the DOJ for $7.2 billion while Credit Suisse paid $5.3 billion.

On that basis RBS’ figure of $8.3 billion looks a bit on the light side given it sold at least 20 per cent more of the mortgage securities than Deutsch. And analysts have estimated the fine could be anywhere between $12 and $20 billion.

RBS said as much this morning in a carefully-worded statement that read:  “further substantial additional provisions and costs may be recognised” and that other “adverse consequences may occur”.

Whatever happens we know for sure today’s massive provision will push RBS to a loss for the full year 2016 – it’s 9th consecutive year of losses – and push out into the long, distant future the moment when any of us taxpayers see a penny of our £45 billion bail-out money back.