Thursday 23 November 2017

RBS injects €4bn to cover Ulster Bank impairments

McCarthy 'loathe' to call bottom but says lender being 'prudent'

Laura Noonan

Laura Noonan

ROYAL Bank of Scotland pumped about €4bn into Ulster Bank last year as impairment charges at the Irish offshoot soared to record levels.

Ulster Bank chief Cormac McCarthy yesterday confirmed that the latest capital injection "roughly equates" to the €4.5bn in impairment charges less Ulster's €470m operating profits.

The year's impairment charges were sharply up on 2010's €2.4bn and were cited as a major drag on the overall RBS results, which showed group-wide losses of £1.1bn (€1.3m).

"The results are not unexpected given the trajectory of our portfolio and the economy," said McCarthy. "We're trying to be as prudent as possible."

Asked whether the worst was over, Mr McCarthy said he had always been "loathe to call the bottom of this" given the level of "uncertainty" in the market.

"The impression we have is that impairments in the first half of the year will continue to be elevated," added Mr McCarthy, who handed in his notice to the bank last summer.

The detail of RBS's results show Ulster Bank's "non core" operation -- a €17.5bn pile of loans in challenging sectors -- accounted for about 70pc of last year's impairments.

"Residential investment and development" was the single worst non-core performer, with impairments of €1.9bn, followed by "commercial investment and development (€816m).

The "core" area was also littered with impairment charges, booking a total of €1.3bn including €520m for "other corporate" lending and €440m for "corporate property".

"Some of that would be forward-looking; what we're essentially doing is future-proofing the book," Mr McCarthy said. "The actual level of write-offs is very low."

Ulster pioneered the 100pc mortgage in Ireland (see panel) and was also behind some of the biggest property deals of the boom including Sean Dunne's €380m swoop on a 10-acre patch of Ballsbridge.

Ulster has been forced to take control of a number of the projects it financed, including Mr Dunne's Ballsbridge hotels and the Arnotts department store, which Ulster effectively co-owns with Anglo Irish Bank.

Mr McCarthy stressed that while 2010's impairments were undeniably big, there were "lots of positives" in the results.

Before the impact of impairments kicked in, the core Ulster Bank business grew operating profits by 40pc to almost €470m as it slashed costs.

Ulster also enjoyed an 8pc rise in customer deposits over the year, something Mr McCarthy is particularly proud of in light of "increased competition and the negative impact of the sovereign debt crisis".

Mr McCarthy also stressed that Ulster's RBS parent remains "very committed" to the market, pointing to last year's capital injection as a demonstration of their "support".

RBS is widely expected to parachute a 'group' executive into Mr McCarthy's role when the Irishman steps down later in the year, with local rumours tipping a female candidate.

Mr McCarthy said the selection and timing of his replacement was a "matter for RBS", but acknowledged that he "didn't expect to still be here" for yesterday's results when he tendered his resignation back in July.

Irish Independent

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