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article imageRBS sets aside £3.0 bn for claims, conduct matters

By Roland Jackson (AFP)     Jan 27, 2014 in Business

The Royal Bank of Scotland said it has set aside more than £3.0 billion ($5.0 billion, 3.6 billion euros) for litigation and compensation claims here and in the United States.

The total includes £1.9 billion to cover largely US action over mortgage-backed financial products, RBS said in a surprise statement that sent its shares sliding.

The state-controlled bank added it has made another £465-million provision for compensation for the mis-selling of payment protection insurance (PPI), which covered repayments on credit products such as consumer loans or mortgages.

The Edinburgh-based lender said it would take another £500 million provision over the mis-selling of interest rate hedging products, known as swaps, to small businesses in Britain.

There will also be an extra £200 million for "various conduct related and legal expenses" when the bank publishes its fourth-quarter results next month.

Royal Bank of Scotland made the shock statement ahead of the stock market close on Monday, sending its share price sliding 2.21 percent to finish at 332.2 pence on London's FTSE 100 index. The FTSE ended down 1.70 percent at 6,550.60 points.

RBS remains 81-percent owned by the state, after it was rescued with £45.5 billion of taxpayers' cash at the height of the 2008 global financial crisis, making it the world's biggest-ever banking bailout.

Chief executive Ross McEwan noted on Monday that before the crisis began RBS was the biggest bank in the world.

"When the crisis broke, the bank was involved in a number of different businesses in multiple countries that have subsequently faced heavy scrutiny by customers and regulators," he said.

"The scale of the bad decisions during that period means that some problems are still just emerging. The good news is we are now a much stronger bank and can manage these costs while still supporting our customers."

The group said the extra £1.9 billion for mortgage-backed securities was announced "following recent third party litigation settlements and regulatory decisions".

An analyst for asset management group Investec warned that there may be further bad news to come.

"This is an exercise in pre-announcing the larger 'one-off' items" ahead of the bank's publication of fourth-quarter earnings on February 27, explained Ian Gordon.

"In truth most of the numbers are within expectations, albeit there is an element of acceleration in terms of recognition. Unfortunately...I very much doubt that these will be the last," he added.

Conservative MP Andrew Tyrie, Chairman of the Treasury Committee, warned of the potential cost to the taxpayer and small businesses.

"RBS is still paying a heavy price for past misconduct," he said. "So too are its customers and taxpayers. It is crucial for the recovery that lending, particularly to SMEs, is not constrained as a result.

"There is little prospect that the money needed to pay these fines can covered by claw-back, of either vested remuneration or deferred bonuses, from those responsible," he added.

"There should be in the future."

RBS also revealed that its PPI compensation claims had continued at the same rate, rather than an expected decline, and were anticipated to continue for a longer time than previously thought.

The group's total provision for PPI compensation now stands at £3.1 billion, of which £2.2 billion had been used up by the end of last year.

Last November, meanwhile, RBS announced plans to create an internal 'bad bank' to run down £38 billion of high-risk assets as the British government looks to return the rescued lender to the private sector.

New Zealander McEwan, who was formerly RBS head of retail business, was appointed as chief executive last August and took charge in October.

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