Finance

Duncan Mavin is a former Bloomberg Gadfly columnist.

In Edinburgh and London, three cheers for Goldman Sachs.

One of the big winners from Goldman settling a U.S. probe into its handling of mortgage-backed securities is likely to be Royal Bank of Scotland.

Shares Falter
Bloomberg

The bank still calls Scotland home and is still majority owned by the British government. It also still faces a litigation problem related to U.S. mortgage-backed securities dating back to the financial crisis -- like the one Goldman just sorted out to the tune of about $5.1 billion. 

Now the Goldman case is out of the way, U.S. authorities can turn their attention to RBS.

The timing and size of the RBS settlement has been a big unknown, weighing on sentiment for investors who might otherwise have bought into management's efforts to turn the bank around and shore up its balance sheet. (Tier 1 Capital stands at a healthy 13.2 percent, as the chart below shows). The uncertainty has also been a factor in RBS not resuming dividend payments.

Top Tier
RBS Tier 1 ratio compares well with U.K. rivals
Bloomberg Intelligence
For last full-year

The Goldman settlement, made with a whole host of U.S. authorities, is a big number for sure. It slices about $1.5 billion off fourth-quarter profit. But even a hefty fine for RBS is better than not knowing.

The U.K. bank has said it also wants a single settlement with all interested parties. There may be some urgency from U.S. regulators to close the book before the presidential election later this year.

In terms of the dollars involved, a direct read across from Goldman's settlement to RBS is difficult. The securities each bank sold (as well as those of others who've already agreed deals) can't easily be compared. Bernstein analyst Chirantan Barua estimates that RBS's settlement could be as high as $7.5 billion in total. That figure would leave RBS with plenty of spare capital to return to investors -- as much as 187p per share by 2018, Barua estimates.

RBS management has made progress on several long-running issues, including disposing of Coutts International, selling down Citizens in the U.S., and listing the Williams & Glyn retail unit in the U.K. Closing the door on a big U.S. litigation concern would mark another milestone. It could also allow the bank to start paying dividends again. That would definitely be something for investors to cheer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at dmavin@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net