Royal Bank of Scotland is to take a £3.1bn hit to cover the cost of a toxic bond mis-selling scandal in the US in a move that is likely to push it to its ninth consecutive annual loss.
The bailed-out bank has already incurred £50bn of cumulative annual losses since taxpayers pumped in £45bn to keep it afloat and the latest hit comes on top of £2.5bn of losses already reported for the first nine months of 2016.
Ross McEwan, the RBS chief executive, would not quantify the scale of the loss for 2016 ahead of full-year results on 24 February and blamed the loss on the bank having “lost its way” in the run-up to 2008 crisis.
In an unscheduled trading update on Thursday, the bank said it would put aside £3.1bn towards the potential cost of a settlement with the US Department of Justice over the way mortgages were packaged up and sold in the run-up to the 2008 financial crisis.
RBS is the last major bank to try to reach terms with the US authorities over the sale of residential mortgage-backed securities (RMBS), a lucrative business for the banking industry until the crisis.McEwan has been warning for two years about the potential hit to the bank from the scandal.
The bank now has £6.7.bn set aside for such RMBS matters and finance director Ewen Stevenson provided a “health warning” that the bill may yet rise.
McEwan said: “Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees.
“This is a very large number. However, it reflects the legacy of the time when RBS lost its way as it embarked on a quest to build a global bank,” said McEwan, who took the helm in 2013. He described that global ambition as misguided and admitted that the RMBS operation – which before the banking crisis was a major moneyspinner for the US operations of Fred Goodwin’s RBS – had only been shut down in 2015.