Shares in Royal Bank of Scotland (RBS) are proving the biggest drag on the UK’s UK 100 index this morning. This is after overnight news of a $14bn US legal challenge against German giant and sector peer Deutsche Bank for the mis-selling of retail mortgages backed securities (RMBS) that contributed to the financial crisis. This is never good news for a sector so intricately linked, especially when aimed at making an example of Europe’s largest (it’s almost equivalent to its market cap!), suggesting that an end to all those years of litigation is a way off yet. While settlements are rarely as great as the original challenge, note the dollar amount being eerily close to the EU’s recent tax cheating challenge against Apple in Ireland and cannily timed around the anniversary of the Lehman collapse.

RBS is suffering most today because it remains in the firing line stateside for its own RMBS mis-selling and actions in the run-up to the financial crisis. However, it has yet to hear from the US Department of Justice (it’s been more than 2 years). Some brokers are pencilling in significant figures (£4-9bn). Perhaps they need to sharpen their HBs and consider the risk of something even higher. US discontent with the EU’s Apple challenge and desire to make Banks pay for making hay while the sun shone pre-crisis is crystal clear. RBS and its investors may not have to wait much longer for their own inevitable bad news.

Mike van Dulken, Head of Research, 16 Sept