Royal Bank of Scotland Group fell after the Times reported in London that the U.K. lender could pay at least $7.7 billion to resolve claims of misconduct in its handling of U.S. mortgage securities.
The Edinburgh-based bank's stock declined 2.4% to 385 pence at 10:40 a.m. local time, while the U.K. benchmark FTSE 100 Index was little changed.
The Times reported yesterday that RBS may have to add to a 1.9 billion-pound ($2.9 billion) provision it took a year ago for a settlement of Federal Housing Finance Agency accusations that the bank sold faulty mortgage bonds to Fannie Mae and Freddie Mac from 2005 to 2007. Chief Executive Officer Ross McEwan has warned fines could delay his plan to return the 80% state-owned lender to private ownership.
RBS may have to pay as much as $5 billion to close the case, Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. in London, said last month.
An RBS spokesman declined to comment today. The Times said RBS's fines may top 5 billion pounds, citing people with knowledge of the matter that it didn’t identify.
The FHFA sued 18 lenders in 2011 to recoup taxpayer costs after the U.S. seized control of the failing mortgage-finance companies in 2008. RBS would be one of the last to settle, alongside Nomura Holdings Inc.
The main case against RBS in Connecticut's District Court relates to about $32 billion of mortgage-backed securities, RBS said in its annual report published in February. The bank agreed to pay $99.5 million in June to close a separate FHFA lawsuit into mortgage bonds the lender underwrote on behalf of Ally Financial Inc.
Bank of America Corp. announced a $9.5 billion accord in March that included paying $6.3 billion in cash to Fannie Mae and Freddie Mac and buying back $3.2 billion of mortgage bonds from them. The housing-finance companies bought about $57 billion of bonds from Bank of America and its predecessor firms.
HSBC Holdings was the most recent to close its involvement in the FHFA probe, with a $550 million settlement in September. About $24 billion has been paid to settle 16 cases brought by the FHFA against firms including JPMorgan Chase & Co. and Deutsche Bank AG to date, according to the housing authority's website.
Fannie Mae and Freddie Mac received $187.5 billion in U.S. aid and have returned more than $200 billion under terms of their federal conservatorship.
