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On the surface, at least, everything remains the same at Ulster Bank in the Republic.
The bank’s announcement last week that it would cut 266 of its 2,800-strong workforce as it intensifies efforts to control costs came as no surprise. Revenues for banks across Europe are depressed by low interest rates, low demand for loans, and the rise in problem loans stemming from Covid-19. The Bank of Ireland unveiled plans in August to cut 1,400 positions and AIB said in February that it will cut 1,500 positions in the coming years.
Ulster Bank, led by CEO Jane Howard, is also actively pushing its mortgage offering to moneychangers as Irish lenders look to fend off the arrival of Spanish-owned Avant Money on the market this week at the lowest rate.
And on Thursday, the bank announced that it has appointed former Canada Life Ireland CEO Ruairí O’Flynn as its new chairman, replacing Des O’Shea, who is leaving the board after eight years of service.
“I look forward to working closely with Ruairí as we support our clients to prosper and integrate our purpose across the NatWest Group,” said Howard Davies, Chairman of NatWest, the parent of Ulster Bank, formerly Royal Bank of Scotland (RBS).
But six years after RBS carried out a major review of its future in the Republic, which briefly considered pushing Ulster Bank into an alliance with another Irish lender and selling a significant stake to private equity investors, the British group is on the move back where it started.
This time, however, NatWest is actively considering liquidating the Irish business, although there is a long shot of an industry merger. The permanent TSB (PTSB) would be the only realistic candidate. However, NatWest has not made any approach so far.
Brexit strain
The Brexit strain on relations between the government, which owns 75% of PTSB, and the Boris Johnson management, which has a 62% controlling stake in NatWest, is not helping.
RBS bought Ulster Bank in 2000 as part of its acquisition of NatWest, and then doubled down on Celtic Tiger’s economy three years later by buying First Active.
Under the ultimate control of then-RBS CEO Fred Goodwin, Ulster Bank financed some of the largest property developers in the Republic, more than doubling assets to € 62 billion in the four years before the boom broke out in 2008. In the retail sector, First Active became the first to offer loans for 100 percent of home values in 2005, a development that would also haunt the market again.
Ulster Bank required a £ 15.3 billion (€ 16.4 million) bailout from parents during the crisis, equivalent to a third of the money UK taxpayers injected into the entire group. More than a decade of problem loan payoffs and a quiet demand in the Republic for new loans brought their own problems, which have been exacerbated by the Covid-19 crisis.
Running costs
Ulster Bank’s running costs ranged from 95% to 111% of its revenue over the past three years, roughly double what banks typically target. The cost-to-income ratio of the broader UK group stood at 65% in 2019.
The profitability of the Irish unit has also been highlighted as a weak point, with a net profit amounting to 2.3 percent of the share capital that NatWest had invested in the business at the end of last year. The group’s return on equity ratio was 9.4 percent.
Outgoing RBS CEO Ross McEwan said a few months after his resignation in late 2019 that it would be another “three or four years” before Ulster Bank made enough money to cover its financing costs. “We have not given up on Ireland,” McEwan said. “But it’s going to take some time.”
It seems her successor, Alison Rose, is running out of patience.
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