The government-backed bank's balance sheet is likely to take a severe hit as a result of the hefty penalty.

Royal Bank of Scotland has set aside a further £3.1 billion ($3.9 billion) 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 tsunami, raising its total provisions for the case to £6.7 billion.

The colossal provision means that the government-backed bank - the parent of private bank Coutts - is unlikely to make a profit in 2016, which would mark the ninth consecutive year RBS has failed to make an annual profit. 

RBS is preparing to begin negotiation with the US Department of Justice over a settlement of the mis-selling claims, the timing of which is still unknown. Last week, Deutsche Bank finalised a $7.2 billion case with the US government body over its sale of toxic mortgage-backed securities prior to the financial crisis, representing the largest payout to date relating to the misconduct. 

“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 reportedly said during a conference call with reporters yesterday.

“[The] announcement is yet another painful example of that legacy,” he reportedly added. 

This is the first time RBS has allocated any money to directly cover a settlement with the US DoJ over the alleged mis-selling of mortgage-backed securities. 

“The sins of the past still loom large in the present for RBS, and the cost of US litigation is the biggest in a long line of problems besetting the bank at the moment,” commented Laith Khalaf, senior analyst at Hargreaves Lansdown.

It does the bank no favors that the fine will be imposed in dollars, as the currency has risen by 15 per cent against sterling since the EU referendum, Khalaf added. 

“The additional provisions will take a toll on the bank’s balance sheet, which it was already busy repairing after it failed a Bank of England stress test last November. RBS is heading in the right direction, but progress is slow, profitability is elusive, and a return to private ownership is in the long grass,” he said. 

Earlier this month, Credit Suisse agreed to pay $5.3 billion to settle its respective case. 

The settlements stem from an initiative sparked by former US President Barack Obama to hold Wall Street accountable for misconduct that helped trigger the worst economic crisis since the 1930s.