Citizens Financial, the U.S.-based banking subsidiary of the The Royal Bank of Scotland (NYSE:RBS), settled the overdraft-related lawsuits against it earlier this week. [1] Citizens is the third major bank after JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) to settle with disgruntled customers who took the banks to court for wrongly charging them excessive overdraft fees.
Citizens will shell-out $137.5 million as a part of this settlement – more than the $110 million for JPMorgan Chase (see JPMorgan Gets a Bargain in Overdraft Settlement Deal), but well below the $410 million figure for Bank of America (see Bank of America Settles Debit-Card Overdraft Lawsuit). Peers Citigroup (NYSE:C), U.S. Bancorp (NYSE:USB) and Wells Fargo (NYSE:WFC) continue to hold out against any settlement in their respective overdraft-related lawsuits.
We have a $8.60 price estimate for RBS’s stock, which is about 12% above the current market price.
See our full analysis for RBS here
Nearly 30 small and big U.S. banks were part of a series of lawsuits that alleged that these banks were wrongly charging customers hefty overdraft fees for well over decade. In particular, customers grudged the banks’ practice of rearranging transactions to process the largest transactions first – effectively forcing them to pay overdraft fees for more transactions. This would have had the effect of bloating Citizens’ fee income over the years.
The settlement will reflect in RBS’s income statement as a one-time charge. It is possible that the bank charge this settlement for Q1 2012 itself, with the earnings for the quarter due on the 4th of May.
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Notes:- RBS Citizens settles overdraft-fees case for $137.5 million, Bloomberg, Apr 25 2012 [↩]
