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What's going on?
US regulators laid the smackdown on RBS on Thursday, as the UK bank once the worlds largest company provisionally agreed to pay a $5 billion fine (tweet this). But the stock rose by 3%…
What does this mean?
RBS says that the charge related to its involvement in mortgage products that later contributed to the 2008-09 financial crisis will hit its second-quarter profits, although most of the $5 billion was already set aside exactly for this purpose (the inventor of the overdraft isnt going to be caught short!). Importantly, the UK government will soon be able to resume selling the more than 70% stake in the company it bought a decade ago in somewhat less than auspicious circumstances.
Last year RBS paid another $5.5 billion to the US Federal Housing Finance Agency (largely over the same issue) meaning its paid over $10 billion in fines as a result of the financial crisis.
Why should I care?
For markets: RBS hopes its back to business as usual.
The investigation into RBS made it difficult for investors to decide how much its stock was worth, since they didnt know whether the company would be punished and if so, how badly. Investors hope the fine draws a line under a harrowing decade for the bank: once it’s settled, RBS can finally start paying dividends to its shareholders. The stock may have got an extra boost as investors realized the fine was less than half the amount theyd feared.
The bigger picture: The US Department of Justice has $65 billion in its coffers and counting…
Banks have paid the Department of Justice some $65 billion in crisis-related fines among the biggest are Bank of Americas almost $17 billion sorry and JPMorgan Chases $13 billion mea culpa. This number could rise further, as banks such as HSBC continue to squirrel money away to cover any eventual fines that may be levied (thatd be in addition to the $2 billion its already paid)!
Originally posted as part of the Finimize daily email.
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