Thursday 22 February 2018

Louise McBride: Ulster back in spotlight as 'bad bank' talk ups gear

The UK plan to hive off RBS's toxic loans puts former AIB boss Buckley in the frame to take them on.

Louise McBride

Louise McBride

Former AIB boss Michael Buckley could be among those managing Ulster Bank's bad loans – if Britain's Chancellor of the Exchequer, George Osborne, proceeds with plans to set up a bad bank for Royal Bank of Scotland (RBS).

Last week, Osborne said the British government – which owns 81 per cent of RBS – was considering setting up a bad bank for RBS's toxic loans.

Osborne suggested that some Ulster Bank assets, as well as commercial real estate assets in Britain, could be hived off into the bad bank. RBS owns Ulster Bank.

Some bank analysts believe that UK Asset Resolution, the bad bank set up a couple of years ago to take over the mortgage books of the British lenders, Northern Rock and Bradford & Bingley, could also become the bad bank for RBS. Buckley is a director of UK Asset Resolution.

Osborne's plan for a bad bank for RBS has triggered concerns that Ulster Bank could be sold or wound down.

Emer Lang, banking analyst with Davy, said it might be easier for RBS to secure a buyer for Ulster Bank today than it would have been a few years ago.

"Clearly finding a buyer for the bank during the banking crisis would have been a massive challenge and winding down a bank of its scale would have been a daunting and costly task," said Lang.

"However, now that the worst appears to be over, will a review conclude that a sale is the best way forward?

"It's not clear who would buy it and presumably the price would have to be set at a level that would be very attractive to find a potential buyer, hence not necessarily the best deal for the seller."

Harry Slowey, director of Finance One and a former director of Bank of Scotland, believes a sell-off of Ulster Bank is unlikely.

"I'm not sure there is a buyer for any bank at the moment," he said.

"There may be buyers for certain loan books – but not for a full functioning bank."

Philip O'Sullivan, chief economist with Investec, also believes that a change of ownership is not on the cards.

"We don't see a queue of bidders for a bank as a whole," said O'Sullivan. "It is more likely there will be a further packaging up of Ulster Bank parcels of loans for sale given the healthy appetite for Irish loan assets at this time – with or without a formal 'bad bank' being established."

If Ulster Bank is not sold, it could ultimately be wound down over the next few years.

Simon Adamson, a financial analyst with Credit Sights, believes a wind-down "over an extended period" is more likely than a sale of Ulster Bank.

"My view at the moment is that the good bank/bad bank split won't happen, and that RBS will continue its strategy of running off its non-core business in Ireland and retaining a slimmed down version of Ulster Bank," said Adamson.

Osborne will decide by this autumn whether or not to set up a bad bank for RBS.

If a bad bank is set up, this would have "major implications for competition within Irish banking", warned Larry Broderick of the banking trade union, the Irish Bank Officials Association.

A sale or wind-down of Ulster Bank would also reduce competition in Irish banking.

"Ulster has a long history here, is involved in all market sectors – and is starting to lend again," said Slowey.

"People like Ulster Bank because it offers diversification and more competition. Ulster is also a key player in the money transmission business and has a big presence in Northern Ireland, which assists cross-border trade."

For political reasons, the British government could be reluctant to sell off Ulster Bank. "I'm not sure the UK government wants to be seen harming an entity that supports the economies of Northern Ireland and the Republic," said Adamson.

RBS said last week that it welcomed Osborne's review. "Proposals that could speed RBS's privatisation while allowing us to support our customers deserve thorough consideration," said RBS chairman Sir Philip Hampton. "Ultimately any change to our strategy would need to be in the interests of all shareholders."

Irish Independent

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