Royal Bank of Scotland is to pay £4.2bn to settle claims it mis-sold billions of dollars-worth of toxic mortgage-backed bonds to Fannie Mae and Freddie Mac in the run-up to the financial crisis.
In a long-awaited deal that helps RBS move on from its troubled past, the lender agreed to pay $5.5bn (£4.2bn) to the Federal Housing Finance Agency (FHFA), which took control of Fannie Mae and Freddie Mac in 2008, over the $32bn of residential mortgage-backed securities (RMBS) the bank sold to the pair between 2005 and 2007.
Ross McEwan, the loss-making lender’s chief executive, said settling the lawsuit was “a stark reminder of what happened to RBS in its past when it put its global ambitions ahead of the interests of its customers”.
He added: “This bank and British taxpayers have paid a very high price for these poor decisions.”
Before the 2008 banking crisis, RBS was one of the largest lenders in the world with a substantial investment banking business.
As part of its expansion, it became the biggest non-American issuer into the US market of RMBS. These were complex securities backed by cash flows from mortgages that Fannie Mae and Freddie Mac bought and which contributed to the failure of the two American mortgage giants when the housing market collapsed.