It looks like Fannie Mae has at least one more big subprime-MBS related legal settlement coming its way. The Times has reported that the Royal Bank of Scotland could have to pay as much as £5 billion ($7.7 billion) to settle charges against it for selling toxic mortgage-backed securities to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) between 2005 and 2007, citing an unnamed source familiar with the negotiations (h/t Richard Partington at Bloomberg). Neither RBS nor the Federal Housing Finance Agency has commented on the report, but RBS is down 1.82% in trading today.

Dividends looking even more remote

If the report is accurate, it would mean that RBS needs to pay more than double the £1.9 billion that it has already set aside as a provision for the settlement, forcing it to accumulate that much more capital before the bank could afford to buy shares back from the British government and go back to being a fully private company.

There had been building expectations that RBS was getting ready to re-privatize as early as this spring after the coming UK general election, but this latest development makes that less likely. That means that ordinary investors in turn would have to wait that much longer before the bank pays them dividends. This all assumes that the £5 billion figure is correct, and anyone selling now based on what is little more than a rumor risks finding that they got out during a low point, but you can hardly blame an investor for deciding to look for a stock without all of the legal uncertainty.

Fannie Mae: Another big dividend for Treasury?

Another big legal windfall could pad Fannie Mae and Freddie Mac’s quarterly earnings when it comes in, but that would just translate to a larger dividend payment to the US Treasury as part of the controversial net income sweep. It may stoke another round of criticism from other GSE shareholders, but it doesn’t change their odds one way or the other. It’s pretty clear at this point that anyone invested in Fannie Mae and Freddie Mac is hoping that the courts rule in their favor. Another $7 billion payment to Treasury may rub salt in the wound, but it doesn’t change the facts of the case.

RBS Could Be On The Hook For A $7.7 Billion Payment To Fannie Mae, Freddie Mac