Royal Bank of Scotland may have to pay as much as $13 billion in efforts to satisfy claims that the company misled investors who bought mortgage-backed securities.
As reported by CNBC and other media sources, the U.S. Federal Housing Finance Agency (FHFA) filed suit in Connecticut last month on behalf of Fannie Mae and Freddie Mac.
The $13 billion estimate, made via court filings, is the first time the FHFA attached a price tag to the case against RBS in relation to its sale of $32 billion in mortgage-backed securities, and as Bloomberg noted on Thursday (July 2), the $13 billion estimate exceeds previous projections of the bank’s liability. As had been reported by The London Times in January, estimates had been that RBS could be fined as much as $8 billion.
The Connecticut filing states that RBS overstated the financial ability of borrowers to pay the mortgages that were tied to the securities issued from 2005 to 2007 and did so via misleading documentation.
The $13 billion tally comes as the FHFA uses as a guideline a previous $806 million judgment against RBS and Nomura that also stemmed from mortgage-backed securities, this time stemming from a case in New York. The companies are appealing that May 2015 verdict.
RBS may also be on the hook for an additional $2 billion fine due to a Justice Department probe into the mortgage securities, Bloomberg reported, citing Chirantan Barua, a Sanford C. Bernstein analyst based in London. The fine could come in the next three months, the analyst said.
Bloomberg said that possible multibillion dollar U.S. fines come just as U.K. Chancellor George Osborne prepares to sell shares in RBS as early as September at a loss to the nation’s Treasury.