Ulster Bank sales talks still have a long way to go

Ulster Bank Group Centre, George's Quay, Dublin. Photo: Mark Condren

Jon Ihle

April 30 2021 02:30 AM

NatWest is not expecting to close deals this year with AIB or Permanent TSB to buy Ulster Bank’s performing assets, according to CEO Alison Rose.

The British bank boss said during yesterday’s Q1 results presentation that there would be only “minimal reduction” in Ulster’s risk weighted assets in 2021 as a result of the strategic decision to withdraw from the Republic of Ireland – a clear indication a transaction is unlikely soon.

Ms Rose said negotiations were ongoing with AIB over Ulster Bank’s €4bn commercial loan book and with PTSB and “other counterparties” regarding other parts of the bank, but that capital returns to NatWest would take place over the medium term.

Goodbody senior bank analyst Eamonn Hughes concurred with the assessment, saying that he had pencilled in a close for a deal with AIB – the more advanced of the discussions – for January 1, 2022.

The earlier consensus view among market sources was that NatWest might conclude talks with the Irish banks in the second-half of the year, after the European Banking Authority publishes the results of its stress tests on the sector.

NatWest reported operating profits for Ulster Bank of just €13m in the first quarter. It was an improvement on the same quarter in 2020, when NatWest booked a €25m loss due largely to provisions the bank took in expectation of Covid-related losses, which have turned out to be better than expected.

A dismal return on equity of only 2.6pc for the quarter, however, underlined NatWest’s reasons for exiting the Irish market.

Ulster Bank’s loan book shrank by €200m to €19.8bn during the last quarter as redemptions outpaced new lending.

A more striking number was the €100m fall in deposits to €21.7bn at a time of record savings by households and burgeoning cash holdings across banks and credit unions.

Stockbroker Davy increased its price targets across the banking sector yesterday in anticipation of the asset sales by Ulster Bank and KBC, saying the benefits of consolidation would negate the challenges of high capital requirements, a low rate environment and poor profitability.