Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
NEVER A DULL moment with Irish banks.
And yet NatWest Group’s decision to wind down Ulster Bank in the Republic of Ireland over the next few years falls into the category of surprising but not unexpected news.
Since last September, it’s been public knowledge that the UK bank was mulling an exit from the market in the 26 counties. A strategic review undertaken by Ulster Bank’s British parent has now paved the way for a gradual wind-down of the bank’s 88 branches in the Republic, where some 2,800 jobs are affected.
A further 600 jobs in Belfast are impacted, although Ulster Bank’s Northern Ireland business is otherwise unaffected.
But it’s a decision that was in the wind for some time and the foundations of this latest development were dug during the 2008 financial crisis.
The question now, for customers and policymakers, is what happens to the bank’s nearly €21 billion loan book? Will it fall to vulture funds like Cerberus and Lone Star, which are reportedly circling, or could the Government in its capacity as a major stakeholder in other Irish banks step in somehow?
What does it all mean for consumers and the thorny issue of competition within the already-diminished post-2008 Irish banking landscape?
Even in the middle of a new, unprecedented global crisis, it’s impossible to talk about the performance of banks like Ulster Bank without mentioning the 2008 banking collapse and the Irish property crash.
Like all Irish banks, the NatWest-owned lender took a pasting, the effects of which have reverberated throughout its results for the past decade.
So deep was the impact of the crash that, after itself being bailed out by the British taxpayer to the tune of £42 billion, NatWest (then called Royal Bank of Scotland) was forced to pump €16 billion in Ulster Bank.
What followed was a decade of job cuts and cost reduction exercises including loan sales, aimed at returning the bank to profitability, which it did in 2014.
As part of a broader restructuring in 2015, RBS hived off Ulster Bank’s operations in the Republic into a new company, separate from the Northern Ireland business.
At the time, the UK parent stated its commitment to its operation in the south but speculation has been rife ever since about a possible sale of the bank.
A significant consequence of that split has been the increasing isolation of the southern entity within the broader RBS/NatWest group. Performance-wise, Ulster Bank has lagged behind the rest of the group, delivering a return of 2.3% on equity compared in 2019 compared to the 9.4% across the rest of the group.
Return on equity is a key measure of profitability for banks and, in a nutshell, when it’s low, shareholders get disgruntled.
Banks often blame onerous European Central Bank capital requirements — the amount of liquid assets they have to hold on their books at any time — for this predicament.
But it’s a chicken and egg debate.
The capital requirements for Irish banks are particularly onerous because the risk models used to calculate them are backwards-looking over a set number of years. Currently, they cover the period of the crash when the hens came home to roost for reckless lenders and Irish banks became some of the most loss-making, overstretched institutions in Europe.
The Banking and Payments Federation of Ireland, the main lobby group for the sector, just this week argued that the capital requirements are outdated, given the substantial improvements in regulation since the financial crisis.
However, the ghosts of banking crisis won’t be exorcised from the risk models for a number of years. That could have been a factor in NatWest’s decision to move on from Ulster Bank.
Onerous capital requirements are also one of the main factors that Irish banks blame for the high cost of lending.
But if you’re looking for other reason why mortgage interest rates are higher in Ireland than the eurozone average, lack of competition in the Irish market can’t easily be overlooked.
Since the crash, a host of banks have left these shores; Rabobank and Danske Bank to name a couple of the more memorable exits.
Three years ago, then-European Central Bank President and current Italian Prime Minister Mario Draghi, famously told an Oireachtas Committee that the Irish market was characterised by a “monopoly or quasi-monopoly” situation.
Including Ulster Bank, there are essentially five lenders in the sector.
Two of them, AIB and Bank of Ireland, enjoy close to a 60% share of the mortgage market. Small players like Ulster Bank and Permanent TSB, with roughly 15% of the market each, have never really been able to compete with the bigger banks, an issue that is likely to be compounded by Ulster’s long goodbye over the next few years.
Competition is one question thrown up by NatWest’s decision. Another is what’s going to happen to its €20.5 billion loan book.
Permanent TSB is reportedly sniffing around for Ulster Bank’s small business lending portfolio and a portion of its mortgage book.
Ulster Bank confirmed this morning that AIB has signed a “nonbinding memorandum of understanding” in relation to a €4 billion portfolio of commercial loans.
But the key questions now are over what happens to Ulster Bank’s mortgage book?
Vulture fund Cerberus is reportedly in the mix and although Ulster Bank last year denied that it was in talks with the fund, the prospect of the US-anchored private equity firm taking control of thousands of Irish home loans is already sending shivers up politicians’ spines.
It’s not for nothing that Cerberus is named after the hellhounds of Greek mythology. Its controversial tenure in Ireland over the past decade has been characterised by aggressive repossession and recovery tactics.
Speaking in the Dáil yesterday, Sinn Féin finance spokesperson Pearse Doherty said a sale of Ulster Bank’s mortgage book to Cerberus would be “an unacceptable outcome for homeowners” that “must be avoided at all costs”.
It’s difficult to say how or if it will be avoided. One solution, suggested by Doherty in the Dáil yesterday, would be for the Government to use its financial position in pillar banks AIB, Bank of Ireland or Permanent TSB to create a “third force” in Irish banking.
Once upon a time, that was shorthand for a full merger between PTSB and Ulster Bank, a debate about the merits of which has been rattling along for the guts of a decade.
In this context, it could mean the sale of a substantial tranche of Ulster Bank mortgage book to PTSB, creating a new player with a share of the mortgage market closer to that of AIB and Bank of Ireland.
Responding to Doherty yesterday, Tánaiste Leo Varadkar said he supports the idea of creating a ‘third force’ and so does the Government.
“And if it’s possible to develop a solution on those lines, that’s something that we are exploring and want to explore,” Varadkar said.
Never a dull moment indeed.
To embed this post, copy the code below on your site
We’ve been customers of UB for 40 years. No complaints here but very worrying now when I hear about vulture fund companies looking at it. Time to move on before we’re pushed I think. Sad day for Ireland and for all those whose jobs are affected.
@2thFairy: your mortgage won’t change..no harm looking around for where to put your savings though
@2thFairy: been flagged for years since bank of Scotland got into difficulties
And #AIB slips in the sale of €600 million non performing mortgage loans to Mars Capital Finance under the radar, never miss an opportunity.
@Peter Jo: scour bags. We value your custom and we the dtate as share holders wont intervene. I know free market etc but morally we the state are as corrupt as them
Moved my current account, including wages, DDs and SOs over to N26 a few weeks ago. Had been using Revolut for a couple of years due to UB’s exorbitant fees. The online start ups are at least providing some competition in this area.
@Handsome McWonderful: done the same a couple years back. Moved everything to N26 and closed UB account
All mortgages with UlsterbankRI are going to be sold off to vulture funds at a massive discount,
I wonder are Ulsterbank going to give their loyal customers the opportunity to buy off their mortgage for the discounted amount that they will sell it for to the vulture funds,
It’s the least they could do to reward people for there custom over the years.
@martin.: Performing mortgages won’t be sold at a massive discount.
It might come as a shock but there are consequences to people not paying their mortgages. In this case we’re all paying because of a local of competition
When they closed down the bank on the corner of Dorset st it was the beginning of the end for Ulster bank.same as the terrible virgin media they can pull out of Ireland with no regard for their customers who been doing business with them for years.thank god I’ve stayed with my bank for over 55 years which is Irish and irish owned probably is the reason why I ve stuck with them for so long
@liam ward60: I’m sure they reward your loyalty by increasing your fees and charges.
@liam ward60: wise wise, man as people, still not getting ters of loan to Ireland, the lender can come back to Irish taxpayer if named bank capital fall below, EU standards. There is no competition in Irish banking.
Transfer of that loan book to aib to our benefit as taxpayer cuts and sf lab pbp and have enuf vote in Dail have a majority to make thus govt. account to Dail. Eg public fund avail to facilitate the transfers to aib bank Irish bank and out of vulture hand as fur them with acct in bitcom companies,.
Ulster couldn’t make enough money because the risk and cost was too high. Why – because people wouldn’t pay back their loans and courts wouldn’t allow repossessions.
Take a bow David Hall and the IMHO.
Take a bow judges who won’t allow normal and fair commercial practice
This move falls solely at the feet of an overbearing regulator with absurd capital requirements and the failure of the government to allow repossessions in a timely manner. This is in fact driving up mortgage rates in spite of these various bodies all supposedly acting in the public’s interest.
@Imperator Trajan: the tsunami of repossessions never took place. This is great for the borrowers who defaulted but it comes at a price for the rest of us and the banks here who have to factor in that you can never get your security enforced. That drives up capital required. The lovers are young people hoping to borrow.
@Ciaran O’Mara: Ah young lovers on borrowed time
@Ciaran O’Mara: or it them asset way overvalued needed by bank to satisfy EU. How about that. Cus remember taxiayer under loan term bail then out never approved by DAIL
Headline of the year!!
Ulster asays Go. Really Ian?
*says
I wonder how many weeks we have to close down our savings account and get our money out.
They Cashed Out
Great analysis, Ian!
Hopefully, some of those 600 Belfast based staff members affected can get transfers into remaining separate NI operations.
This leaves 2,200 staff impacted in ROI, many of whom will get tsf as part of deal packages from buying parties.
Mkt Price for elements to be sold off will reflect employment contract burdens taken over. Once staff terms at UB are on par with those within buying party, smooth deals should be possible, but very costly to exiting UB as high lab costs were a major factor to low ROCE.
So,whilst final SP will be low, NatWest should be glad to finally exit& rid itself of headaches of being quite a small disgruntled player in Irish Banking,with zero growth potential.2 of big 3 will benefit &make a great fist of it by boosting its IT infrastructure
@Rory J Leonard: fine selection of acronyms there Rory!
@Philip Cullen: LOL
Adiós
Bailed out only to fail anyway.
@RogersRabbit: they didn’t fail,there leaving because they don’t make enough profit off the Irish market. And it was the UK govt that bailed RSB not us.
@Patrick Daly: Closing down is as good as failing.
Why does our government not protect its citizens from carrion crows like Cerebus and Lone Star?
Under the, terms, of the, loan to Ireland and memo of understanding signed by minister Michael noonan in June 11, a loan not only to bail out named banks but also to pay PUBLIC BILLS. The IRISH TAXPAYER is responsible to keep banks capped to EU standards
The lenders can come back to taxpayer if bank can’t comply fail tests. Simple as that until loan paid back
The transfer of loans to aib is, to out benefit giving aib assets, to increase capital reserves.
If guvt comes up with scheme to facilitate transfer to aib and EU commission blocks it as being state, aid or to anti competitive will b another example of cost of membership of membership of this organisation that is funded and the EURO by Germany.
have your say