Thursday 22 February 2018

Ulster Bank set to repay €1.5bn of UK parent bailout

Ulster Bank headquarters. Photo: Damien Eagers
Ulster Bank headquarters. Photo: Damien Eagers
Michael Cogley

Michael Cogley

Ulster Bank Ireland is to become the first major bank to pay out a dividend since the financial crash.

The bank announced yesterday that it is to repay €1.5bn to its UK state-owned parent Royal Bank of Scotland (RBS) next Wednesday, November 30.

Ulster has received approval from both the Central Bank of Ireland and the European Central Bank to make the payment, which will allow RBS to claw back some of the £15bn (€17.6bn) it used to prop up the Irish business after the Crash. It comes as analysts at Merrion Capital said Bank of Ireland could "positively surprise" with its own dividend in February.

Ulster Bank Ireland will have a tier one capital ratio (CET1) in excess of 24pc, leaving the institution well in excess of the levels required by regulators after the payment.

Ulster Bank ceo Gerry Mallon said the announcement signals "a very important milestone" for the company.

"Ulster Bank remains very well capitalised with a strong balance sheet and is well-positioned to continue to support customers' ambitions through our excellent products and service," Mr Mallon said.

Goodbody analyst Eamonn Hughes expects further payments of a similar nature down the line.

"Ulster Bank Ireland's CET1 ratio will be in excess of 24pc post the dividend payment, significantly above minimum capital requirements," he said. "In addition to this, Ulster Bank's risk-weighted asset (RWA) density is 92pc - the highest among European peers," he added in a note to the markets.

Davy analyst Diarmaid Sheridan said the move will "release trapped capital" at a group level for RBS, however he believes the Irish arm's CET1 ratio remains "slightly overcapitalised".

RBS pumped almost a third of the £45bn bailout package granted to it by the UK government into Ulster Bank in the wake of the financial crash.

The dividend marks a reversal of Ulster Bank's position within RBS.

It was its weakest unit in the immediate wake of the credit crunch, and a drain on group capital.

Ulster Bank is now profitable, while RBS posted an attributable loss of £469m in the third quarter of this year, as litigation and restructuring costs took their toll.

The move to repay dividends by Ulster Bank comes after Bank of Ireland announced its intention to resume repayments in the first half of next year.

KBC Bank Ireland, which has also returned to profit, is also looking to restart its dividend programme. The bank, which posted a €44m net profit for the third quarter of the year, has sought High Court permission to reduce its share capital.

If successful, the lender would be freed up to begin paying back its Belgian parent.

The news that Ulster Bank will begin paying a dividend comes after the Central Bank fined it €3.3m over breaches in implementation of money laundering and terrorist-financing rules.

The State's financial watchdog fined the bank at the start of this month, and said Ulster had admitted to failures in its practices over a six-year period from July 2010.

An inquiry into the institution found eight breaches around areas including its management of outsourcing.

Ulster Bank ceo Gerry Mallon has hailed the first dividend since the Crash as a "very important milestone"

Irish Independent

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