Royal Bank of Scotland Takes Another $5B Charge

Hopes for a turnaround in Royal Bank of Scotland, the nationalized U.K. bank, took a hit Monday, when the lender said it set aside 3 billion pounds ($5 billion) more to cover U.S. legal costs and customer compensation claims in Britain.

The bank, which is 80 percent owned by the taxpayer, announced the decision in a statement issued a month ahead of its full year results. At the time of the crisis, the bank was involved in a number of businesses that have since come under scrutiny by regulators, Chief Executive Ross McEwan said.

“The scale of the bad decisions during that period means that some problems are still just emerging,” he said in a statement. “Billions of pounds have been spent to resolve conduct and litigation issues in recent years. Costs on this scale were not predicted by anyone when RBS was rescued in 2008.”

The government rescued RBS in 2008 with a 45-billion-pound ($71 billion) capital injection, after former swashbuckling CEO Fred Goodwin brought the bank to near-collapse with an aggressive global expansion strategy that included the ill-fated purchase of Dutch lender ABN Amro.

But the problems didn’t end with rescue, and both McEwan and his immediate predecessor, Stephen Hester, have tried to unravel years of mismanagement and excess.

The chairman of Parliament’s Treasury Committee, Andrew Tyrie, said the bank and its customers continue to pay a heavy price for past misconduct.

“There is little prospect that the money needed to pay these fines can covered by claw-back, of either vested remuneration or deferred bonuses, from those responsible,” Tyrie said. “There should be in future.”

The RBS action on Monday included 1.9 billion pounds to cover various claims related to mortgage-backed securities and securities-related litigation in the U.S.

The decision comes after other banks settled to pay for similar issues. Last year, JP Morgan Chase paid a whopping $13 billion in fines for selling risky mortgage bonds that it knew might fail to investors before the crisis.

The troubles emerged in America when the real-estate-bubble burst, sending home values plunging. Many homeowners defaulted on their mortgages and lost their properties. Investors who bought the securities backed by mortgages lost billions.

Besides the mortgage-backed-securities measure, the bank allocated 465 million pounds to compensate customers to whom it had improperly sold payment protection insurance. Another provision of 500 million pounds was set aside for interest-rate-hedging products.

“After five years of hard work and tough choices, the path ahead for RBS is much clearer,” McEwan said. “We have restored our fundamental soundness and have the financial strength to deal with issues like this. We will now become a much simpler, more effective bank for our customers and shareholders.”

McEwan had already said he wouldn’t take a bonus for 2013 or 2014.

The bank also said Monday that eight other executives will not take bonuses.