Ulster Bank's plans to merge with Permanent TSB may be derailed over difficulties in integrating the two banks, according to industry sources.
Ulster Bank's matrix IT system would be extremely difficult to unpick from the overall RBS group system, which would make it almost impossible to migrate customers over to the Permanent TSB system – and vice versa.
Creating a new banking platform would cost "hundreds of millions" according to sources. The British TSB bank has spent close to €1bn on a banking platform, which indicates the scale of the expense. Rival bankers have also suggested that Ulster Bank may need to be restructured further, with more branch closures and further staff cuts, if it was to be folded into Permanent TSB. This could see a bill of close to €1bn just to create a functioning bank.
Ulster Bank owner RBS has hired Morgan Stanley and PwC to look at options for the Irish bank. It has been suggested that private equity firms may be tapped to help recapitalise the bank before merging it with an incumbent Irish player. Warburg Pincus, CVC, KKR and Permira were named as among those approached to inject cash into the bank to boost its capital position. Ulster Bank has described this as "speculative".
It is understood that Morgan Stanley has not made contact with Permanent TSB about a potential tie-up, while PTSB declined to comment.
However, investment bank sources indicated that negotiations were likely to be held between the Department of Finance and the British Exchequer and UKFI, which manages the taxpayers' interest in bailed out banks. KBC bank last week indicated that it was not interested in linking up with Ulster Bank.
Permanent TSB boss Jeremy Masding has moved the bank back to basics and concentrated on managing arrears and doing simple banking like taking deposits or lending rather than racier business. The core part of the bank is now profitable, with the overall unit likely to return to profit within the next three years. The state is likely to sell off some or all of the bank, with a trade sale, IPO or strategic stake disposal all considered in the medium term.
This improved financial position has made the bank more attractive to potential buyers. It is believed that the bank has been informally approached by potential investors – including private equity firms – about the sale of a stake in the last four weeks.
Permanent TSB has also appointed Morgan Stanley to handle the sale of its €2.6bn worth of non-core Irish assets, split between the Springboard subprime loan group and the Commercial real estate book. The bank also owns the Capital Home Loans business in the UK but it is understood that this is performing extremely well and that Permanent TSB is in no hurry to sell this asset.
The former Irish Life & Permanent was bailed out with €4bn in taxpayers' funds in the banking crisis. Some €1.3bn has been repaid through the sale of Irish Life. While AIB said it expected to repay all the €21bn bailout funds it received from the State, Permanent TSB has been more conservative with its promises.
Sunday Indo Business