Sunday 17 December 2017

London and Dublin mulled Ulster Bank/PTSB merger

Michael Noonan
Michael Noonan
Colm Kelpie

Colm Kelpie

Top officials here and in the UK held talks on possibly merging Permanent TSB and Ulster Bank as recently as last June, official documents show.

A potential merger of UK state-controlled Ulster Bank and Irish Government-owned Permanent TSB was discussed between the Department of Finance, the UK Treasury and Royal Bank of Scotland, official documents show.

The Department of Finance prepared analysis on what a merger of the two banks would look like, and senior officials from the Department sought to present it to RBS - Ulster Bank's parent company - at a meeting in London last June.

Discussions between Finance and the UK Treasury began as far back as the previous March, focusing on so-called "synergies" between the two lenders, as well as dealing with tracker mortgages and any state aid concerns, according to the documents released under Freedom of Information.

Talks also focused on potential third party investors, such as a sovereign wealth fund or a pension fund.

The possibility of a merger of Ulster Bank and an Irish rival was widely speculated on last year after its UK parent RBS launched a review of its Irish operations, including looking at whether to cut its stake in the Irish unit.

Finance Minister Michael Noonan's stated desire to see a "third force" emerge in Irish banking also fuelled speculation an Ulster Bank-Permanent TSB deal could be on the cards.

At the time Permanent TSB chief executive Jeremy Masding said the Irish lender had had no contacts with Ulster about a merger or tie-up.

But the latest documents show that a potential merger was considered by Government officials in both Dublin and London. However, the recovering economy in Ireland and the improving fortunes of Ulster Bank ultimately led RBS to publicly commit to its Irish division last October.

Ulster Bank returned to profit in the first half of this year, boosting its ability to begin returning some of the €16.8bn (€21bn) that the UK parent was forced to pump into the bank to cope with losses on boom-era lending.

By September, it was becoming clear in correspondence between Finance and the Treasury that RBS's thinking was changing.

Following a conference call between the Department of Finance and RBS that month, a senior official in the Department's Shareholding Management Unit wrote to the Treasury to state that RBS's Ulster Bank review was ongoing and was "taking longer than expected".

Earlier this year Ulster Bank reported an operating profit of €752m.

It was its first annual profit since the financial crash in 2008.

Permanent TSB, meanwhile, has begun to repay part of its bailout costs through a €525m capital raising that saw the State here reduce its stake in the lender to below 75pc earlier this year, in the start of a long term re-privatisation of the bank.

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