Royal Bank of Scotland dips 2.8 percent to top the list of FTSE 100 fallers as concerns grow over the lender’s exposure to a U.S. mortgage-backed-bond mis-selling probe by regulators and continued uncertainty over the strategic outlook for the bank.
The fall, in heavy volume of half the stock’s 90-day daily average after two hours of trade, comes as the broader European banks sector is hit by concern over the scope of the latest assessment of the balance sheet health of euro zone lenders and the impact of potential monetary policy tightening in China.
“RBS had a decent run-up and then came back on worries over U.S. litigation and [UK finance minister George] Osborne talking about splitting the bank up,” says Cavendish Asset Management fund manager Paul Mumford, referring to Monday’s 5 percent slide after the comments from Osborne.
On the issue of the U.S. probe, analysts at Morgan Stanley say RBS could take a hit of up to $4.4 billion, although its base base is for $3 billion, which either way is the highest potential cost for any European bank.
That compares with base case estimates for Deutsche Bank to take an $800 million hit, $550 million for Barclays, $500 million for HSBC , $300 million for Credit Suisse and $80 million at Societe Generale.
The U.S. Federal Housing Finance Agency (FHFA), the conservator of Fannie Mae and Freddie Mac, has alleged 18 banks mis-sold securities between 2005 and 2008. JPMorgan is facing a $4 billion settlement with the FHFA, which has raised concerns banks face higher than expected bills. UBS paid $885 million to settle in July and other banks have set aside money for potential costs.
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