£3 billion is to be reserved by the publicly owned Royal Bank of Scotland to deal with compensation claims as well as litigation. £465 million of which will be reserved for Payment Protection Insurance compensation claims. The reservation of funds is estimated to shift RBS’ annual loss to an estimated £8 billion.
Ross McEwan, chief executive of RBS commented: “I would say at least now we are in such a good financial position we can take having to put aside close to £3bn to really again look after litigation and conduct issues from the bank’s past history.
“We were the biggest bank in the world and we had businesses on all continents, so I don’t think it’s surprising that some of these things will emerge as regulators and people take litigation against banks.”
He continued: “What’s really important here is we are in a position to handle these losses now, these provisions… When exceptionally large banks go wrong, which is what happened here, it takes a very long time to get them right again.”
Business Secretary Vince Cable stated that “They are absolutely shocking numbers and taxpayers will be appalled they are still facing the bill for abuses that took place, five, ten years ago, the chronic mis-selling, the swaps that were sold to small business, and insurance mis-selling.
RBS said after “recent third party litigation settlements and regulatory decisions” a further £1.9 billion was used for mortgage-backed securities.
MP Andrew Tyrie who is the chairman of the Treasury Committee said: “It is crucial for the recovery that lending, particularly to (small and medium-sized businesses), is not constrained as a result.”
JPMorgan Chase paid £8 billion ($13 billion) in America last year because of grievances over mortgage securities and mortgages. A subsidiary of RBS also paid £95.5 million ($153.7 million) because an inquiry in the US in which they were suspected to have misinformed investors with a sub-prime mortgage product.