€866m deposit flight from Ulster Bank after guarantee exclusion
British financial regulator issues damning report into its parent bank RBS
Published 13/12/2011 | 05:00
ULSTER Bank haemorrhaged £732m (€866m) of deposits in just four days after being excluded from the first incarnation of Ireland's bank guarantee scheme, it emerged yesterday.
The swift deterioration of the Irish bank's deposit base was revealed in a damning report by the UK regulator into the "deficiencies" that forced Ulster's parent RBS to accept a £45bn bailout.
In the report, the Financial Service Authority (FSA) slammed the "poor decisions" and weak corporate governance that triggered RBS's 2008 near-collapse, as well as the "light touch" financial regulation that enabled problems to build unchecked.
While Ulster Bank is a tiny part of RBS's global operations, it featured several times in yesterday's report, as the FSA noted how the deposit exodus "further intensified pressure" on RBS's liquidity, while the Irish exposure spooked hedge funds.
Ulster didn't give any sense of its September 2008 deposit flight at the time and, weeks later, decided not to enter the guarantee scheme when it was opened up to foreign-owned institutions.
The following March, RBS's 2008 annual report described Ulster deposits as "largely flat year-one-year" at a level of £24.3bn. Deposits fell to a low of £18.9bn in June 2009 before recovering to £23.4bn by this September, more recent filings showed.
The FSA report also noted Ulster's breakneck growth as the bank expanded its balance sheet at a rate of 26pc a year during the boom time period between 2004 and 2007.
That expansion ultimately contributed to impairment charges of £6.45bn on Ulster loans between 2008 and 2010, largely concentrated in the bank's massive property book where borrowers included the likes of Ballsbridge developer Sean Dunne.
That "rapid proliferation of commercial property loans from 2004 onwards" was identified by hedge funds interviewed by the FSA as a key concern, as was RBS's exposure to "corporate and retail loans in Ireland".
"Another of the hedge funds also remembered RBS's large single name concentration in its loan book, which it considered were driven, in part, by RBS's unwillingness to syndicate loans if the potential return was attractive," the report added.
The wide-ranging FSA report is a tour de force of the failings in both the British banking system and RBS itself.
The £49bn takeover of ABN Amro was particularly admonished, with the report describing it as a "degree of risk taking that can reasonably be criticised as a gamble" given the limited due diligence the bank had carried out on the deal.
The dysfunctional relationship between RBS's management and the bank's regulator was also laid bare, as the report revealed how FSA officials were repeatedly refused one-on-one access with the bank's non executive director because RBS said it was being "picked on".
In one instance, RBS then-chief Fred Goodwin was able to convince the FSA to remove crucial warnings about the bank in a letter being sent to the lender's board.