Mortgage provisions push RBS further into the red

Royal Bank of Scotland, Britain's biggest government-owned lender, is on track for its largest pre-tax loss since 2008 after setting aside a further £3.1 billion (HK$39.8 billion) for legal and compensation claims.

The provision included £1.9 billion for lawsuits and fines tied mostly to the sale of US$91 billion of mortgage-backed securities from 2005 to 2007, the lender said on Monday. It follows agreements Deutsche Bank, JP Morgan Chase and UBS struck with regulators in the United States to settle claims they did not provide adequate disclosure about mortgage-backed debt sold in the housing bubble that preceded the 2008 financial crisis.

RBS chief executive Ross McEwan is attempting to overhaul the lender by eliminating assets and jobs. He said in November that the bank would log a "substantial" full-year loss after £4.5 billion of write-downs. His efforts are being hobbled by the cost of past regulatory missteps. More than five years after giving RBS the biggest bank bailout in history, the British government still has not been able to cut its 80 per cent stake.

"This looks like a new CEO's attempt to clear the decks and draw a line under the matter," said Joseph Dickerson, an analyst at Jefferies International.

The stock fell 2.2 per cent to 332.2 pence in London on Monday, below the 407-pence price at which the government said it would break even on its holding. It has lost 9.2 per cent in the past 12 months while Lloyds Banking, the second-biggest government-owned lender, is up 50 per cent. The Treasury sold a £3.2 billion stake in Lloyds in September, its first step to returning the bank to full private ownership.

"When the crisis broke, the bank was involved in a number of different businesses in multiple countries that have subsequently faced heavy scrutiny by customers and regulators," McEwan said on Monday. "The scale of the bad decisions during that period means that some problems are still just emerging."