RBS to review future of €2bn Ulster Bank
Ulster Bank & First Active owners under pressure
ROYAL Bank of Scotland is thought to be reviewing the future of its €2bn Ulster Bank and First Active.
Last week, incoming RBS chief executive Stephen Hester said that asset sales could be part of a strategic review. He added that there would be no "sacred cows".
It is understood that divisional heads will meet with Hester in Edinburgh, when he officially takes the helm of the bank in the coming weeks, replacing Fred 'the Shred' Goodwin who is resigning.
"It is clear we have already identified a number of areas in the balance sheet and businesses where we want to shrink," Hester told an analysts' conference call last week.
"Obviously we are going to look at that again, and I suspect that we will add to that list," he said.
RBS is under pressure to shrink its balance sheet as part of the €26bn UK government bailout of the bank, which saw the British taxpayer take a 60 per cent stake in the institution. Hester needs to pay back €6.4bn worth of hugely expensive preference shares owned by the government before he can start paying ordinary shareholders dividends again.
Raising this sum is likely to see the bank examine the 'saleability' of some of its global operations, including Ulster Bank and First Active. RBS is thought to be trying to sell off its insurance business, with private equity firm CVC and Allstate said to be interested in buying a stake in the Churchill and Direct Line businesses. The RBS investment banking divisions in 50 countries are also said to be high on the list of potential disposals.
"The previous strategy of expansion didn't work, so he'll reverse it. He'll be in the disposal business," according to one broker.
However, banking sources have suggested that Ulster Bank and First Active are more likely to stay within the RBS group after the review as the focus on disposals may be in the investment banking and Asian businesses.
The dismal state of the economy and the Irish banking sector could discourage RBS from offloading Ulster Bank and First Active. The bank's state-backed recapitalisation programme means that there will not be a fire sale of its assets.
"Frankly it's tough trying to sell quality business at the moment," according to Alex Potter of Collins Stewart. "And selling in Ireland would be tougher."
And another financier pointed out: "None of the Irish banks could afford Ulster Bank at the moment. Private equity isn't going to come in. It's been too badly burnt."
It is thought that Finance Minister Brian Lenihan and the Financial Regulator would support a consolidation of the banking sector with stronger banks mopping up the weaker players. This might prevent the need for the major Irish banks tapping up the Government for up to €10bn worth of new capital.
The sale of AIB's stake in M&T and cashing in on its Polish banking operations is likely to see the State's largest bank avoid approaching the Government for fresh capital. However, the other main financial institutions -- most notably BoI -- do not have similar assets they could sell to raise large amounts of cash.
Last month Anglo Irish Bank sold its Austrian banking business to Valartis. Bank of Ireland's remaining Bristol & West operations are thought to have aroused interest at financier Clive Cowdery's Resolution Group.
- Nick Webb
