RBS hit with a £360m fine in the US for the 'deceptive' selling of toxic mortgage investments before the global financial crisis

  • New York State has slapped a £360million fine ($500million) onto the bank for its mis-selling of mortgage-backed securities
  • Attorney general accused RBS of adding to the global financial crisis of 2008
  • Defaults on mortgages led to a cascade of failures by financial institutions that packaged the loans with no idea as to which were good or bad debts

By LOUISE HILL FOR THIS IS MONEY

Updated:

The Royal Bank of Scotland has been slapped with a £360million penalty by US authorities for 'deceptive practices' in its selling of toxic mortgage investments in the run up to the global financial crisis.

The bank's mis-selling of mortgage-backed securities added to the problems which eventually culminated in the 2008 financial crash, New York State said as it ordered the fine on Tuesday.

It follows a £3.9billion fine paid by the bank in 2017 to a US regulator for its role in the crisis.

'Deceptive': The latest penalty follows a £3.9billion fine paid by the bank in 2017 to a US regulator for its role in the 2008 financial crash

'Deceptive': The latest penalty follows a £3.9billion fine paid by the bank in 2017 to a US regulator for its role in the 2008 financial crash

RBS packaged subprime mortgages into risky financial derivatives it sold to customers, a practice that helped spark the 2008 housing meltdown, New York state Attorney General Eric Schneiderman said in a statement.

Even after the bank was warned many of the loans fell below legal and regulatory requirements, RBS 'packaged and sold them anyway', the statement said.

Defaults on mortgages led to a cascade of failures by financial institutions that packaged the loans but had no clear idea of which ones were good and which were likely to default, which ultimately led to the 2008 crisis. 

Schneiderman, who has so far secured some $3.7billion in cash and consumer relief for New York, said: 'While the financial crisis may be behind us, New Yorkers are still feeling the effects of the housing crash.

'Home values plummeted. Vacant homes consumed neighbourhoods. And for many New Yorkers, affordable housing fell out of reach. 

'Today's settlement is another important step in our comprehensive effort to help New Yorkers rebuild their lives and communities.'

The settlement includes $100 million in cash to the state, and $400 million worth of consumer relief for New York homeowners and communities as a result of the damage done by the sale of residential mortgage-backed securities (RMBS).

RBS has pledged to buy abandoned houses and to lend on favourable terms to the victims of the subprime crisis.

The UK bank is the sixth financial institution to reach an agreement with Schneiderman's agency on RMBS practices.

'For many New Yorkers, affordable housing fell out of reach': Attorney general Eric Schneiderman (pictured) has been responsible for holding banks which contributed to the 2008 crash to account over the past decade

'For many New Yorkers, affordable housing fell out of reach': Attorney general Eric Schneiderman (pictured) has been responsible for holding banks which contributed to the 2008 crash to account over the past decade

RBS last month announced its first annual post-tax profit since the eve of the financial crisis.

The gain of £752 million ($1.04 billion) for 2017 came after a drop in litigation and other costs which totalled billions of pounds and came largely over its role in the subprime housing meltdown.

Last July the bank agreed to pay $5.5 billion in a settlement with the US Federal Housing Finance Agency to resolve a lawsuit which alleged that RBS sold faulty mortgage bonds between 2005 and 2007.

RBS remains majority-owned by the British government, which bailed it out during the crisis but plans to sell most of its stake over time.

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