Dublin: Royal Bank of Scotland is plotting a retreat from Ireland after spending £15.3 billion ($26 billion; Dh56.18 billion) over the past six years bailing out its operations in the country.
The British bank is looking for investors to buy a stake in its operations in the Republic or for another bank to merge with the division, allowing RBS to dilute its holding, after racking up £17 billion of losses from bad loans in the worst real-estate crash in western Europe.
RBS chief executive officer Ross McEwan is under pressure to return some of the £45.5 billion British taxpayers injected into the Edinburgh-based lender during the financial crisis of 2008 in the biggest banking bailout in the world. Ireland’s economy is rebounding from the worst recession on record, helping him to attract buyers for the first time since the financial crisis.
“The timing may reflect a political rather than a commercial agenda,” said Stephen Lyons, an analyst at Dublin-based Davy, Ireland’s largest securities firm. “It seems odd that they’re looking for outside investment now, when Ulster is at the point of returning to profit. Selling a stake in the near term wouldn’t capture the business’s proper value.”
Ulster, Bank of Ireland, the nation’s largest lender, and Allied Irish Banks all returned to profit in the first quarter for the first time since the onset of the financial crisis. The National Asset Management Agency, set up to rid Irish lenders of toxic property loans, expects to make a profit of €1 billion (Dh5 billion) over its lifetime, according to a person with knowledge of the matter, amid a surge in demand for real estate assets in the country.
RBS is yet to return a penny of its bailout to British taxpayers. The government has cut its stake in Lloyds Banking Group to 25 per cent and is preparing to offer a further chunk to individual investors later this year. RBS stock trades at about 345 pence, below the 407 pence price at which the government would break even on its investment. The Conservative-led coalition faces a general election in 2015.
“The UK government is looking down the barrel of a general election,” said Ray Kinsella, banking professor at University College, Dublin. “There’s little doubt that the UK is putting pressure on RBS to accelerate restructuring, including increasing lending to the domestic economy, and to reduce its direct exposure to a problematic presence in the Republic.”
McEwan and Jim Brown, who leads Ulster Bank, declined to be interviewed for this article through Linda Harper, a spokeswoman for the bank in London.
RBS has hired Morgan Stanley to review its Ulster unit. McEwan pledged on February 27 he will retain RBS’s operations in the North, which is still part of Britain. The lender is still open to ceding control of Ulster in the Republic of Ireland, according to a person with knowledge of matter.
RBS has approached private-equity firms about making an investment in the business in the south, said two people, who asked not to be identified because the talks are private.
Executives are also considering whether to merge the operation in the Republic with another lender, reducing RBS’s holding in the operation, the people said. A larger unit would be more attractive for potential buyers, one of the people said.
McEwan told analysts on a May 2 call RBS is trying to turn Ulster into a “challenger” to Ireland’s two largest lenders. The lender is “just too small to be that,” he added.
After moving risky real-estate loans to RBS’s internal bad bank, Ulster has about €29 billion of loans, compared with €83 billion at Bank of Ireland and €65 billion at Allied Irish.
“Having a minority stake in a larger entity would probably prove easier to divest over time than to attempt to sell a smaller bank in its entirety,” Philip O’Sullivan, an economist at Investec Plc in Dublin, said.
Officials at Morgan Stanley declined to comment on the negotiations.
RBS executives have approached officials at the finance ministry to discuss the possibility of merging Ulster with part of Permanent TSB Group Holdings, the bailed-out mortgage lender, two people familiar with the matter said. KBC Groep’s Irish unit may be another possible merger candidate.
“We’re quite interested in how the landscape will evolve over time,” said Wim Verbraeken, CEO of KBC Bank Ireland. The bank’s strategists “wouldn’t be doing their job if they weren’t studying various options,” he said.
Speaking to reporters, Jeremy Masding, CEO of Permanent TSB, said that while he hasn’t spoken with Ulster Bank, the lender would be “open minded” if another firm were to approach them.
Permanent TSB has about €23 billion of Irish loans, mostly mortgages, while KBC has about €12 billion.
“A merger would give the new entity critical mass and external investment would help, when RBS are reluctant to commit any further capital to the Republic,” said Kinsella.
