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RBS to pay $4.9 billion to settle charges of misleading RMBS investors

Royal Bank of Scotland will pay $4.9 billion to settle charges by the U.S. Justice Department that the bank misled investors about the issuance and underwriting of residential mortgage-backed securities prior to the global financial crisis, the federal agency announced.

The settlement is the largest imposed by the Justice Department "for financial crisis-era misconduct at a single entity" in the run-up to the financial crisis of 2008-2009, the department said in a news release.

The settlement "holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community," Andrew Lelling, U.S. attorney for Massachusetts, said in the release. "Despite assurances by RBS to its investors, RBS' deals were backed by mortgage loans with a high risk of default."

The Justice Department claimed RBS from 2005 to 2008 did not disclose systematic problems with originators' loan underwriting, changed due diligence findings to keep high-risk loans in its RMBS portfolio and gave investors inaccurate loan data.

RBS used residential mortgage-backed securities "to push the risk of the loans, and tens of billions of dollars in subsequent losses, onto unsuspecting investors across the world, including non-profits, retirement funds and federally insured financial institutions," according to the Justice Department release.

RBS did not admit to the Justice Department allegations, the agency said.

The bank in May had announced an agreement "in principle" with the Justice Department over the RMBS charges.

Ross McEwan, CEO of RBS, said in a news release the bank was "pleased to have reached a final settlement. … There is no place for the sort of unacceptable behavior alleged by the (Justice Department) at the bank we are building today."

The RBS settlement is the latest involving banks misleading investors on RMBS. On Aug. 1, Wells Fargo agreed to pay $2.09 billion to settle Justice Department claims of misrepresenting the quality of the securities to investors.