Royal Bank of Scotland yesterday confirmed it was under investigation by the US Securities and Exchange Commission over its exposure to American sub-prime mortgages.
The investigation, which was launched in March, covers the bank's interests in securities backed by sub- prime home loans, as well as residential mortgages written by US subsidiaries.
Details of the probe are buried in the prospectus for the Edinburgh-headquartered banking giant's imminent £12bn rights issue, which is to be put to a vote at a shareholder meeting this week.
A spokesman for Royal Bank yesterday declined to comment on the matter beyond what has been stated in the prospectus.
Page 131 of the shareholder prospectus reveals that Royal Bank subsidiaries have been asked to provide information from "various US Governmental agencies and self-regulatory organisations" in relation to the sub-prime mortgage crisis.
The prospectus documents state: "During March 2008, RBS was advised by the SEC that it had commenced a non-public, formal investigation relating to RBS's US sub-prime securities exposure and US residential mortgage exposures.
"RBS and its subsidiaries are co-operating with these various requests for information and investigations."
The Royal Bank's US subsidiaries are Citizens Financial and Greenwich Capital.
However, an insider at the bank insisted: "This is an industry-wide investigation and does not only involve the Royal Bank of Scotland.
"Indeed, this particular investigation is one of dozens launched into the mortgage industry by the Wall Street watchdog since the crisis emerged last year.
The insider added: "We always co-operates fully with any inquiry."
Earlier this year, Sir Fred Goodwin, Royal Bank's chief executive, unveiled underlying profits for 2007 of £10.28bn, in line with City expectations - even after increasing writedowns by £400m to £1.6bn, knocking some £1.1bn off group profits.
Another £978m was written off assets held by ABN Amro, but these did not hit Royal Bank because they were attributed to the period before the bank took control on October 17.
At the same time, Royal Bank's investment banking global markets business experienced flat income of £10.3bn as the credit crunch bit and operating profit fell 2% to £5.6bn, much of this due to writedowns of assets exposed to the US sub-prime crisis.
The investigation by the SEC comes on the heels of an earlier inquiry by the New York State attorney-general, which came to light earlier this year, relating to Greenwich Capital.
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