The Royal Bank of Scotland Group plc RBS, headquartered at Edinburgh, the U.K, has agreed for a $125-million (£93.55 million) settlement announced by the California Attorney General Xavier Becerra, Reuters reported. The bank had been charged for misguiding investors in mortgage-backed securities (MBS) during the financial crisis.
The Probe
The bank has been accused by two large California pension funds — the California Public Employees' Retirement System and the California State Teachers' Retirement System — of providing fraudulent details regarding MBS sold to them.
The plaintiffs accused Royal Bank of Scotland of having concealed the risks involved in these investments as such securities were sold without meeting the required underwriting guidelines. Gradually, these MBS plunged to a junk status, leaving investors suffering millions of dollars in losses.
“RBS decided to mislead California's pension funds in order to line its own pockets – plain and simple,” Becerra said in a statement.
Royal Bank of Scotland is combating several litigation issues related to MBS. Per RBS chief executive officer — Ross McEwan — resolution of such cases is a relief to the bank which is associated with MBS during the period from 2004 to 2008.
“We have been very clear that putting our remaining legacy issues behind us is a key part of our strategy,” he said.
Similar Cases
In July 2017, RBS agreed to settle a lawsuit by paying $5.5 billion that accused it of misrepresenting facts pertaining to MBS by the Federal Housing Finance Agency.
Previously, in September 2016, RBS agreed to the resolution of claims over MBS sold to credit unions by paying $1.1 billion. The announcement was made by the U.S. National Credit Union Administration.
In Conclusion
Post the financial crisis of 2008, regulators have ramped up their efforts to penalize financial entities for wrongdoings and misrepresentation of facts while selling investment products. Many foreign banks, including Deutsche Bank AG DB, UBS Group AG UBS and Credit Suisse Group AG CS, have settled numerous mortgage-related litigations. We believe all these settlements indicate banks’ efforts to get past the legal headwinds and concentrate on improving operational efficiency.
In six months’ time, the company’s share price has been up more than 15% on the NYSE as compared with 11.9% growth recorded by the industry.
Royal Bank of Scotland currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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