RBS chair: bank acted as plunging pound set cost of US fine soaring

As the pound today hit a fresh 31-year low against the dollar, the chairman of the Royal Bank of Scotland has revealed that the 73 per cent state-owned lender acted to protect itself against such a plunge after Britain voted to leave the European Union last month.

Sterling has now fallen from $1.50 ahead of the referendum result to a 31-year low against the dollar and is now worth $1.29.

In an interview with the BBC, RBS chair Sir Howard Davies said the bank feared a plummeting pound would inflate a looming multi-billion dollar US fine relating to the Edinburgh-based bank’s role in the 2007 US housing market collapse.

The disclosure came as uncertainty over ‘Brexit’ continued to rattle financial markets as sterling dropped to $1.2798, before recovering slightly to $1.2932.

The pound has now fallen by about 14 per cent against the dollar.

Analysts said the latest convulsion had been brought on following warnings issued by the Bank of England on Tuesday that Brexit risks were “crystallising” and fears about the UK commercial property market.

Yesterday’s news also appeared to prompt M&G and Aviva to follow Aberdeen Asset Management and Standard Life Investments in suspending their property funds.

Explaining RBS’s position, Sir Howard said the bank had acted to protect itself in the event the dollar strengthened against the pound.

“I can’t tell you for how much, but yes we did notice that, and we bought some protection,” he told the BBC Radio 4’s Today Programme.

RBS, together with Barclays and Deustche Bank, is in talks with US authorities to settle a long-running investigation into its sale of investment bonds based on sub-prime mortgages in the US.

Analysts have speculated that the size of the eventual fine that could be imposed on RBS may be as much as £9bn.

The 10 per cent fall in the exchange rate between sterling and the dollar since the referendum vote means RBS’s decision to hedge against the currency could have saved it £900m.

However, RBS shares have also plunged sharply since the vote, falling from north of 260p to about 160p.

Sir Howard said the fall in the bank’s share price was the result of the bank’s direct exposure to the British economy.

“The market thinks there is going to be a slowdown in the UK economy, and if you are a big domestic bank you can’t hide from what’s going on,” he said.

This week RBS chief executive Ross McEwan said the effect of Brexit on the bank’s share price is likely to set back its re-privatisation by at least two years.

Sir Howard would not confirm Mr McEwan’s statements or that the government’s planned sale of shares in RBS was now on hold but said it was a “realistic” conclusion to think it would be delayed.

The government had said it wanted to sell part of its stake before the next election.

Sir Howard was one of the bank bosses who yesterday met the Chancellor, George Osborne, to discuss the Brexit vote fallout.

The RBS chairman said the bank was ready and willing to lend.

He said: “Last time (the 2008 crisis and recession) the situation was that demand for credit, but so was supply, because the banks had to build up their reserves. That is not the case this time round. We are not capital-constrained and we are able to lend.”