US fine fears weigh heavy on RBS share sale plans

The spectre of a fine ranging between $5bn (£4bn) and $12bn imposed by American authorities on Royal Bank of Scotland is preventing the re-privatisation of the still 73 per cent state-owned, bailed-out bank, MPs have heard.

The yet-to-be-determined cost of a settlement with the US Justice Department over claims the Edinburgh-based bank mis-sold toxic mortgage securities in the run-up to the financial crisis of 2008 is weighing on the value of the bank, James Leigh-Pemberton, head of the body that manages the public’s stake in RBS, has told a hearing of the Commons Treasury Committee.

Mr Leigh-Pemberton, the chairman of UK Financial Investments, told MPs that financial markets had speculated on the size of the settlement.

“The fine might be $5bn, it might be $12bn,” he said in a hearing of the Commons Treasury committee.

“Based on what was said to Deutsche Bank it could be more”, he said, referring to a demand from the Justice Department that the German bank pay $14bn over the mis-selling charges.

UKFI itself does not have “any certainty of what the size of the fine is”, he added.

Chancellor Philip Hammond has previously said uncertainty about RBS’s US fine is one of the main reasons the government cannot sell more of its holding in the bank.

The impact of any fine on RBS is also likely to be more severe in light of the weakening of the pound against the US dollar as a result of the UK’s decision to leave the EU.

However, it is likely the Justice Department will wait until President-elect Donald Trump appoints a new Attorney General before it focuses on the case.

The range of possible outcomes meant investors could not work out how much RBS’s shares should be worth, Mr Leigh-Pemberton said.

Mr Leigh-Pemberton also told the committee that RBS needs to resolve its disposal of Williams & Glyn branches, which is an obligation it has as a result of its £45 billion bailout in 2008, before investors will be interested in buying shares.

Glasgow-based Clydesdale Bank has recently been heavily linked to the W&G business but no sale is likely to take place until well into next year.

RBS was unavailable for comment.