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RBS takes multibillion pound charge as US mis-selling fine looms

The state-backed Royal Bank of Scotland (LSE: RBS.L - news) (RBS) is to announce within days that it is taking another multibillion pound charge for mis-selling mortgage-backed securities - a move that will catapult it to one of its biggest losses since the 2008 financial crisis.

Sky News has learnt from sources in Whitehall that the Treasury and UK Financial Investments (UKFI) - which manages taxpayers' 72% stake in the bank - have been informed that RBS directors will discuss the move at a board meeting later this week.

One insider said on Wednesday evening that a formal statement about the charge could come as soon as Thursday.

The precise size of the provision, which will be included in its 2016 full-year results to be announced next month, was unclear, although another source said that it could be between $3bn (£2.4bn) and $4bn (£3.2bn).

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A final decision will not be taken until the board meeting, they added.

RBS has already begun preparing for a DoJ settlement by setting billions of dollars aside for a fine, with the head of UKFI telling MPs (BSE: MPSLTD.BO - news) last year that the eventual settlement could be as high as $12bn (£9.5bn).

More recently, analysts have suggested that the bank could take a £2.7bn charge for the fourth quarter of last year.

An announcement about the provision for a settlement with the US Department of Justice (DoJ) would come just days after the inauguration of President Donald Trump sparked fresh uncertainty about the scale and timing of a settlement.

Last month, Barclays (LSE: BARC.L - news) was sued by the DoJ for refusing to settle a multimillion dollar claim, while Credit Suisse (IOB: 0QP5.IL - news) and Deutsche Bank (IOB: 0H7D.IL - news) collectively agreed to pay $12.5bn in penalties and customer redress.

The mis-selling of residential mortgage-backed securities (RMBS) has been - in terms of fines - the biggest scandal to emerge from the pre-crisis era, with investors duped into buying toxic mortgages that were packaged up by banks and sold as ultra-safe.

Based on its share of selling these securities, RBS can expect to pay a fine at least as large as Deutsche Bank's, according to analysts.

Lenders including Bank of America (Swiss: BAC-USD.SW - news) , Goldman Sachs (NYSE: GS-PB - news) and JP Morgan have also paid to settle cases brought by the DoJ, while RBS itself has settled with a number of other authorities, including $1.1bn to the National Credit Union Administration Board.

The latest provision from RBS will exaggerate the size of the loss that it reports next month - the ninth year in a row when it has been in the red.

While it will be small by comparison with the £24bn loss it announced for 2008, the figure will nevertheless be substantial: by one measure, it made a loss of £2.5bn in the first nine months of 2016.

It is unclear when RBS bosses led by Ross McEwan, the chief executive, will be able to announce a formal settlement with the DoJ, although there was media speculation shortly after Christmas that a deal was imminent.

It was also unclear whether this week's board meeting would lead to new charges being taken in its 2016 results for other misconduct and legal matters.

RBS has been pushing to gain clarity over the size of a DoJ penalty in recent months, partly in order to enable Mr McEwan to focus on other areas of transformation during 2017.

Allocating the charge to its 2016 results would allow it to create a clearer picture of progress in its financial performance during the next 12 months, according to a person close to RBS' biggest shareholder.

Mr McEwan also needs to resolve the issue of the sale of hundreds of branches under the state aid deal struck when RBS received £45.5bn of taxpayers' money during the 2008-09 banking crisis.

Philip Hammond, the Chancellor, has suggested that a resumption of sales of the taxpayer's stake is some way off.

RBS declined to comment on Wednesday.