Future of Ulster Bank in doubt once again
Published 12/06/2015 | 02:30
The long-term future of Ulster Bank has once again been thrown into doubt after the British government said it will return the bank's parent to private hands.
Investors or a new chief executive may now decide to sell Ulster Bank just months after the British government decided to keep the two banks together.
Shares in Ulster Bank parent Royal Bank of Scotland rose yesterday after Chancellor George Osborne said the government would start selling its £32bn (€44bn) stake in RBS.
The sale plan represents a milestone in terms of RBS's recovery from the financial crisis but also means Mr Osborne has given up on his original intention to sell the shares for a profit.
RBS was bailed out during the 2007-9 crisis at a cost of £45.8bn. Despite yesterday's gains, the shares remain below the government's average buy-in price of 502 pence when it was rescued.
In his annual speech to financiers this week, Mr Osborne said the government had decided to start selling its 79pc shareholding after taking independent advice from investment bank Rothschild and the Bank of England.
Analysts said there would be significant interest from institutional investors willing to overlook ongoing issues relating to past misconduct at RBS and uncertainties over Britain's continued membership of the European Union.
The institutions, some of which are based in the United States, see the bank as a play on Britain's economic recovery. They are also attracted by RBS's modest valuation.
The bank's market value is currently just 0.8 times that of its assets.
By comparison, state-backed Lloyds Banking Group, in which the British government has already sold almost half its stake, trades at 1.3 times the value of its assets.
"I would say demand is high from large institutions in the US, the UK and Europe. It's a very attractive risk/reward payoff with potential excess capital down the road," said Jefferies analyst Joe Dickerson.
Investec analyst Ian Gordon expects RBS to have a "very material capital surplus" and said the bank could buy back £10bn of its own shares in 2016.
Chief executive Ross McEwan has improved RBS's performance since succeeding Stephen Hester in 2013, benefiting from an improvement in Britain and Ireland's economies which has enabled the bank to recover loans it had written off.
But the bank's recovery has been hampered by issues relating to past misconduct and record fines from the US.