Sunday 15 December 2019

Richard Curran: Let's not get too excited about RBS plans to offload Ulster Bank

Accusations: Ulster Bank
Accusations: Ulster Bank

Let’s not get too excited about the RBS announcement that it is looking to sell some or all of Ulster Bank’s Republic of Ireland operations.

After all, if RBS could have found a buyer before now, it would have off-loaded the business in a heartbeat.

On paper the bank’s chances of finding a buyer or strategic partner for the Southern operations of Ulster Bank might look a little better in another couple of years. The bank appears to have just returned to some operational profitability. Plus, the economic and property landscape have improved.

But it may be a big ask to find someone to come along and take a chunk of the bank or all of it right now. Look at the options.

1. A bank buys Ulster Bank’s Republic of Ireland business. Firstly, it isn’t buying the whole thing. Its legacy loan book would have to be hived off separately. The Northern Ireland business would remain in RBS’s hands. Its IT system has crashed several times and would need a lot of work, aside from being stripped away from the RBS operation. International banks are not showing much interest in Ireland. If it is such a good bet, why is RBS selling it?

2. Private equity investors buy a stake in Ulster Bank. Private equity investors are buying up lots of assets in Ireland but not the banks that own them. The only big private equity deal to have been done in Ireland was with Bank of Ireland. Here a group of investors bought a minority stake in Bank of Ireland and have done very well, doubling their €1bn investment. But they held a minority stake in a listed company in which nobody owned a majority interest. That gave Wilbur Ross and other investors a stronger say around the boardroom table. If they bought 25pc or 30pc of Ulster Bank, RBS would control the rest. That is not so attractive.

3. Merging with another Irish bank. There are only two candidates here – Permanent TSB or KBC. The former is owned by the state and the latter is Belgian owned. Permanent TSB is struggling to put together a convincing strategic plan that has the backing of the EU. It is making progress but still not making a bottom line profit.  Merging two loss makers is not an automatic recipe for success. Better to wait until all of the bad news has been washed out of the system before putting them together. That might be a little bit further down the road. KBC lost its shirt on mortgages in the Irish market. Its new focus in Ireland is on personal banking. How good a fit would these two businesses be? It is hard to say at this stage. It would give KBC some more scale in the Irish market but it would require a huge rebranding and investment. Are the Belgians ready to put that kind of money into Ireland, after getting such a roasting here?

If Permanent TSB could do a deal with Ulster it might be good news for the Irish taxpayer, already well under water on its Permo bailout. A merger would give some scale to a new player thereby providing some competition for the dominant Bank of Ireland and AIB. But it is hard to see it coming off at this point in time.

If private equity investors took a slice, it might not be such good news for Michael Noonan, who might like them to write a cheque for a slice of AIB instead.

There just may be too many banks looking for too much investment from too few sources right now. I wouldn’t bet on an Ulster Bank deal in the short term, unless it is a complete fire sale.

Perhaps David Cameron wants to see some talk rather than action around Ulster Bank, which has cost the British taxpayer stg£15bn. Action might be a different story.




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