Royal Bank of Scotland has taken a £3.1 billion provision as it prepares to settle claims in the US that it mis-sold toxic mortgage-backed securities in the run up to the 2008 financial crisis.
The provision means that state-backed RBS is unlikely to make a profit in 2016, the ninth year the bank has failed to make an annual profit in a row.
RBS, which owns Ulster Bank, is preparing to start negotiations with the US Department of Justice over a settlement of the mis-selling claims, the timing of which is still uncertain.
"This bank, and of course the British taxpayers, have paid a very heavy price for the decisions that were made at RBS before the crisis," RBS chief executive Ross McEwan said on a conference call today.
"Today's announcement is yet another painful example of that legacy," he said.
This is the first time that RBS has set aside any money to directly cover a settlement with the US Department of Justice over the alleged decades-old mis-selling of mortgage-backed securities.
RBS is the latest European bank that needs to reach a settlement with US authorities.
Credit Suisse earlier this month agreed to pay $5.3 billion and Deutsche Bank agreed to pay $7.2 billion to settle their respective mis-selling cases.
These settlements stem from an initiative launched in 2012 by former US President Barack Obama to hold Wall Street accountable for misconduct in the sale of the securities that helped to trigger the worst economic crisis since the Great Depression.
Analysts said investors would welcome the first signs of clarity over the eventual size of RBS's settlement even as the final total remains unclear.
Analysts have estimated the bank could have to pay the US Department of Justice as much as £9 billion in the next few months. Even the lowest estimate of £2 billion would make it the largest fine in the bank's history.
UBS said in a research report this week that RBS sold around 35% more volume of the toxic securities than Deutsche Bank, but also said there had so far been little correlation between the volume sold and the size of a final settlement.
RBS said the total misconduct bill for mis-selling these securities might exceed its provisions.
CEO McEwan has been trying to clean up RBS's balance sheet and end an array of legal cases so the UK government can sell its more than 70% stake in the bank after a £45.5 billion bailout during the financial crisis.
McEwan said the bank was unable to clawback any banker bonuses in relation to the US mortgage securities because they were sold before the financial crisis and there were no laws in place at the time that would allow RBS to recoup any of the money.
The UK government has said that the uncertainty about the scale of the US penalty is one of the reasons why it halted plans to sell any further shares in the bank.
RBS said in its statement it continued to cooperate with the Department of Justice, although it remained uncertain when a settlement might be reached.
