Kalyeena Makortoff

Bankers at Royal Bank of Scotland (RBS) admitted they were selling “total f*cking garbage” to investors and made light of destroying the housing market in the lead-up to the financial crisis, damning documents released by US authorities show.

The quotes were published by the US Department of Justice after announcing it had finalised a $4.9bn (€4.3bn) settlement with RBS over the mis-selling of residential mortgage-backed securities (RMBS) between 2005 and 2008.

These were home loans bundled together as tradeable assets that helped spark the financial crash.

The documents detail how RBS “routinely made misrepresentations to investors about significant risks it failed to disclose about its RMBS”, according to the DoJ, which has accused the bank of failing on due diligence around the packaged loans and including loans that were unlikely to be repaid.

It cites RBS’s chief credit officer in the US as saying that the assets were made up of “total fucking garbage” loans with “fraud (that) was so rampant ... (and) all random,” so “the loans are all disguised to, you know, look okay kind of ... in a data file”.

Throughout the deals, the DoJ said RBS executives joked and showed little regard for their misconduct.

RBS’s head trader received an email from a friend that said: “(I’m) sure your parents never imagine(d) they’d raise a son who (would) destroy the housing market in the richest nation on the planet.”

The head trader answered: “I take exception to the word ‘destroy.’ I am more comfortable with ‘severely damage.’”

The DoJ estimates RBS underwrote and issued mortgage-backed securities that have so far resulted in losses worth more than $49bn, and forecasts another $5.6bn will be lost. While RBS has agreed to pay a $4.9bn fine to the DoJ, it disputes and has not admitted the allegations put forward by American authorities.

The UK bank was the world’s third largest underwriter of RMBS behind Lehman Brothers and Bear Stearns.

Andrew Lelling, the US attorney for the district of Massachusetts, said: “This resolution — the largest of its kind — holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community. Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default.”

RBS chief executive Ross McEwan said: “This settlement dates back to the period between 2005 and 2007. There is no place for the sort of unacceptable behaviour alleged by the DoJ at the bank we are building today.”

Press Association