Ireland Readies to Fend Off ‘Vultures’ as NatWest Exits

(Bloomberg) -- As NatWest Group Plc’s prepares to sell off about 20 billion euros ($24.2 billion) of loans as part of Ulster Bank’s demise, Ireland’s banks have been handed a head start over their international rivals.

NatWest, which said Friday it’ll close down Ulster in coming years, is already in talks to sell 4 billion euros of commercial loans to AIB Group Plc. It also confirmed “early discussions” with Permanent TSB Group Holdings Plc and other banks about retail loans.

“All priority and our preference is absolutely to work with the full service banks,” Ulster Bank Chief Executive Officer Jane Howard told RTE Radio.

For months now, Irish government officials have been plotting how NatWest’s exit could be used to buttress the domestic banking sector. That strategy, in part, reflects a wider unease in Ireland about how international investors, dubbed ‘vulture funds’ locally, have bought vast loan portfolios in the wake of the 2008 financial crisis and the exit of overseas players such as Danske Bank A/s and Lloyds Banking Group Plc.

“The bank and its assets are now vulnerable and any fire sale of assets to vulture funds must be categorically ruled out,” Ged Nash, a lawmaker with the Irish opposition Labour Party, said.

Sensitivities Abound

Ulster controlled loans worth 20.9 million euros at the end of 2020, excluding bad loan provisions of 900 million euros. About three-quarters are mortgages, and opposition politicians are zeroing in on how they might be handled as NatWest exits.

Howard said NatWest has faced no government pressure on where loans might go. Yet the wider context is important, analysts said.

“The Irish business is set to be run down, but the time frame in indeterminate as the sensitivities of a number of stakeholders needs to be managed,” Redburn analyst Fahed Kunwar said.

Ireland Is Said to Wargame NatWest’s Exit from Ulster Bank

If the deal with Permanent TSB for the bulk of Ulster’s retail bank comes to fruition, it could help create a so-called third force in the nation’s banking market.

Ireland’s banking landscape is dominated by AIB and Bank of Ireland Group Plc. A potential merger between Ulster, Permanent TSB and KBC Groep NV’s Irish unit has long been mooted as a possible rival.

Still, the Irish banks are likely to only want Ulster’s performing loans, though a complication is many of these mortgages track ECB interest rates, leaving it difficult to make a profit.

Investment firms including Cerberus Capital Management LP and Lone Star Funds may be interested in buying bad loans at a discount. About 5 billion euros of Ulster’s book is non-performing or underperforming. Still, selling even those to investment funds could spark a political outcry.

“We should not allow any part of its mortgage loan book to be sold off to vulture funds who have no long-term interest in Ireland or Irish homeowners,” Pearse Doherty, finance spokesman for Sinn Fein, the biggest opposition political party.

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