Thursday 21 September 2017

Dan White: Osborne needs Ulster deal for RBS sale – but can we help?

The proposal to offload Ulster Bank was immediately shot down by the bank's chief, but it could make sense

Dan White

Dan White

THE proposal to offload Ulster Bank on the long-suffering Irish taxpayer is almost certainly motivated by the British government's desire to clean up RBS in advance of a sale of all or part of HMG's 81 per cent stake in the troubled UK lender.

Although quickly denied by RBS chief executive Stephen Hester, there was almost certainly more to last week's rumours of an Ulster Bank sale to the Irish Government than met the eye.

Ever since the British government was forced to bail out RBS at a cost of £45bn (€52.8bn)to the UK taxpayer in 2008, its Ulster Bank subsidiary has been by far its most toxic offshoot.

Over the past five years RBS has had to pump an additional £14.5bn into Ulster Bank, almost a third of the money which it received from the British government, to keep its Irish arm afloat. Last week's denials notwithstanding, there is little doubt but that RBS would dearly love to be shot of Ulster Bank.

With UK Chancellor George Osborne desperate to offload all or most of the UK's 81 per cent stake in RBS, continuing uncertainty about the health of Ulster Bank is one of the main obstacles blocking his path.

Hence last week's rumours. According to the BBC's business editor, the usually well-informed Robert Peston, the UK Treasury was exploring the possibility of transferring ownership of Ulster Bank to the Irish Government. In return the British government would receive some of Nama's UK assets.

Such an asset swap holds many attractions for the British government. By shedding its worst-performing subsidiary the RBS share price, which currently stands at just £3.16, would rise to a level nearer the £5 per share that Gordon Brown paid when bailing out the bank in October 2008. A recovery in the RBS share price to the British government's original £5 purchase price would in turn facilitate a sale of all or part its shareholding in the bank.

However, while it's easy to see what the attractions of an Ulster Bank sale are to the British government, it's far harder to see what, if anything, is in it for us.

The Irish taxpayer, with virtually complete State ownership of two banks (AIB and Permanent TSB), a 15 per cent stake in another (Bank of Ireland), two more banks (Anglo and Irish Nationwide) in liquidation and the Nama bad bank, is seriously over-subscribed when it comes to banking.

Why on earth would the Irish Government wish to further increase its exposure to our rotten banking sector?

Neither does the mooted transfer of Nama's UK assets to the British government in return for Ulster Bank make much sense from an Irish point of view. While the UK accounts for just one-third of Nama's assets it has generated almost four-fifths of the total sale proceeds since the bad bank was first established in 2009. Without UK asset sales, particularly in the booming London property market, Nama would be in a right pickle.

While it had been mooted that Nama would only transfer its bad UK assets, the reality is that most of Nama's best assets are in the UK. If the Brits want some of Nama's "stinky" assets (that's Mr Peston's description), there are plenty of unfinished estates in Leitrim that they're welcome to.

So are there any circumstances under which it might, just might, make sense for us to even consider acquiring Ulster Bank? While swapping Ulster Bank for some of Nama's UK assets seems to make absolutely no sense, would it be possible to structure a deal involving some of the Irish banks' remaining UK assets?

At the end of last year Bank of Ireland had a UK loan book of €51bn, AIB had an €8.3bn UK loan book, Permanent TSB had €7.7bn of British loans on its balance sheet while who knows what treasures lie buried in IBRC, which houses the loans of Anglo and Nationwide?

What is crystal clear is that if such a deal were to happen the primary motivation on the British side would be political rather than economic. After a torrid three years as Chancellor, Mr Osborne badly needs a political success. Selling the UK government stake in RBS at or close to the original 2008 purchase price would fit the bill nicely.

Would it be possible to structure such a deal so that Ulster's losses continued to be underwritten by the UK taxpayer? (There is no way that Ireland PLC could take Ulster on to the national balance sheet.) If it was then we on this side of the Irish Sea would do well not to reject any British proposal out of hand.

The five years since the Celtic Tiger bubble burst have provided this country with a crash course in realpolitik. While our European "partners" screwed us royally, the old colonial master behaved relatively decently – including lending us £3.2bn at the time of the November 2010 bailout. If we can do our nearest neighbour a favour at no cost to ourselves, then we should. If we can't, we should at least decline the offer as gracefully as possible.

Irish Independent

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