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RBS earmarks another £2bn to cover past mistakes

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Royal Bank of Scotland has set aside another £2 billion to cover past mistakes as part of a raft of mammoth financial provisions.

The taxpayer-backed lender said it was putting by £1.5 billion to cover expected legal action on US residential mortgage-backed securities, as well as £500 million extra for payment protection insurance (PPI) mis-selling compensation.

RBS said it was also pumping another £4.2 billion into its pension scheme.

Ross McEwan, chief executive of RBS, said: “I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank.

“We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses.”

The additional hit for US mortgage legal action, which is expected to be settled soon, takes its total to #3.8 billion, although RBS stressed this related only to civil claims and does not include any potential settlement relating to the Department of Justice or US Attorneys investigations.

Its PPI provision sees its total bill for the mis-selling scandal reach £4.3 billion and Mr McEwan said it was a lesson to the entire banking industry of the “importance of treating customers fairly”.

The bank, which is 73% owned by the Government, also revealed a £498 million write-down on the value of its troubled private banking business.

Mr McEwan said: “We’ve always been open about the scale of past issues facing RBS and although there is clearly much more to do, this announcement is a further step towards addressing legacy issues.”

Mr McEwan confirmed the bank is set to report another loss for 2015, with the latest provisions and write-downs adding to the impact of wider restructuring at the bank.
Shares dropped more than 4%.

While the pension fund payment will largely come from reserves, the remaining £2.5 billion in provisions and write-downs will directly hit its bottom line.
The group will report 2015 results on February 26.

It means the bank will have remained in the red for eight years running, after RBS posted its seventh straight loss in 2014 with £3.5 billion in annual losses.

But RBS said it believed the extra PPI payment will draw a line under its financial toll for the scandal, covering mis-selling compensation up to the proposed deadline being set by regulators for claims, at the beginning of 2018.

Its pension payment comes after the group revised its accounting policy for the defined benefit scheme, which left it facing a funding gap.

The bank has agreed to make the lump sum payment of £4.2 billion into the main fund, which was closed to new members 10 years ago but still has around 220,000 members.
The group remained tight-lipped on the timetable for settlement of the US mortgage legal action.

It is the last of the major banks to settle with US authorities over toxic mortgage-backed bonds sold in the pre-crisis years.

More than a dozen banks have already settled their cases.

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