The Treasury has held secret talks with US officials aimed at accelerating a multibillion fine for Royal Bank of Scotland (RBS) that would finally draw a line under its pre-bailout misconduct.
Sky News has learnt that officials from the Treasury were due to discuss earlier this week the progress of settlement negotiations between RBS and the Department of Justice (DoJ) over the mis-selling of residential mortgage-backed securities (RMBS).
The talks were scheduled just days before the state-backed lender is expected to report its tenth consecutive annual loss – depending upon whether it takes another big charge for the impending DoJ fine.
A senior City insider said this weekend that discussions between the Treasury and US officials were aimed at expediting a final penalty for the bank, which some analysts predict could be higher than £5bn.
RBS has already set aside $ 3.3bn (£2.4bn) to cover the DoJ penalty, and last year paid $ 5.5bn (£4bn) to the Federal Housing Finance Agency (FHFA) in relation to the bank’s issuance and underwriting of $ 32bn of RMBS during the leadership of former boss Fred Goodwin.
One source said on Saturday that the Treasury’s intervention could lead to a deal with the DoJ being agreed within weeks, although the timing remains uncertain.
Talks between the DoJ and a cluster of international banks, which also includes Barclays, stalled for months following the election of Donald Trump, the US President, because of a dearth of senior officials within the agency.
With that staffing vacuum now resolved, both RBS and the UK Treasury want a settlement agreed as quickly as possible.
It is conceivable that the bank could take another major provision in its 2017 results, which will be signed off by its board shortly before it announced full-year figures on 23 February.
However, without greater certainty over the likely penalty, RBS will have to delay any new charges until this financial year, making it probable that it will also be loss-making in 2018.
Ross McEwan, RBS’s chief executive, and finance chief Ewen Stevenson have told investors for months that they anticipated settling with the DoJ in 2017, but became more pessimistic about that prospect during the final months of the year.
Concluding the DoJ talks is the biggest remaining obstacle to RBS paying a dividend to shareholders, the largest of which by far remains the British taxpayer following the bank’s £45.5bn bailout in 2008.
Philip Hammond, the Chancellor, has also signalled that any further sale of the public’s 71% stake is contingent upon the US fine being announced.
He has publicly acknowledged that future disposals are likely to incur losses for British taxpayers.
RBS remains under pressure on several fronts, not least its treatment of small business customers during and after the banking crisis, but its financial performance has improved markedly, with the first three quarters of 2017 all ending in the black.
That brighter picture will lead to RBS announcing the smallest reduction in its bonus pool since its taxpayer rescue, according to people close to the bank.
Sources said it was in discussions with UK Financial Investments, the agency which manages the Government’s stake, about paying bonuses of marginally less than the £343m it awarded last year.
As well as the outstanding DoJ penalty, RBS also faces a number of much smaller RMBS probes in the US, as well as civil litigation relating to the malpractice which has seen other banks fined tens of billions of dollars.
RBS and the Treasury both declined to comment this weekend.