Inside the world of business

Ulster continues  to plague RBS

ROYAL BANK of Scotland used the words “excluding Ulster Bank”, “except Ulster Bank” and “with the exception of Ulster Bank” seven times in the state-owned bank’s report for the first quarter.

Leaving out Ulster Bank, various metrics at RBS have improved or remained stable, the bank said. The “still loss-making” Ulster Bank continues to plague RBS.

The bank said it pumped up to a further £770 million (€920 million) into its Irish operation, pushing the amount of UK capital injected into Ulster Bank to almost €13 billion. Although the overall bad debt charge at Ulster Bank was down on the same quarter last year, bad-debt costs were higher than in the last quarter of 2011.

Ulster Bank has gone the route most banks have to repair themselves, splitting into core and noncore divisions; some £34 billion (€41 billion) of loans have been retained in the core unit and £14 billion (€17 billion) in noncore.

The bank has taken most of the impairment pain in the noncore division, setting aside provisions to cover losses on development loans that make up most (£8 billion) of the loans in that unit of the bank.

There was a 7 per cent up-tick in the noncore bad-debt charge, while souring loans are 15 per cent higher on loans deemed core due mostly to mortgage losses.

There is a startling graphic on page 112 of the first-quarter report showing the breakdown of Ulster Bank’s £19.8 billion (€24 billion) in mortgages by loan-to-value. The bulk of the loans, some €16 billion of mortgages, fall into the loan-to-value category of 90 per cent or higher and the average ratio is 112.5 per cent, reflecting the high level of negative equity.

Ulster Bank and its since closed sister bank First Active were among the most prolific mortgage lenders in Celtic Tiger years, selling 100 per cent loans. The average LTV ratio is now 70 per cent, RBS says, but new lending levels are anaemic; the mortgage book contracted 8 per cent over a 12-month period.

How things have changed.

A rare glimmer of light for Ireland Inc

Maybe it’s the imminent arrival of summer, or maybe just a flash in the pan, but for the first time in quite a while, Irish listed companies found themselves the subject of broker upgrades this week.

Yes, that’s companies – plural. Both Aer Lingus and Smurfit Kappa cheered analysts enough with their first-quarter figures to merit reconsideration of their prospects.

For Aer Lingus investors in particular, it was a week of positive surprises, with news yesterday of a maiden dividend.

On Thursday, the airline reported that operating losses had fallen by over a third. The State carrier still finished the period with a loss of €36.1 million but seasonal factors mean the first three months of the year are notoriously difficult for the sector, with most carriers incurring losses in this period.

What impressed was that Aer Lingus had managed to improve its position so substantially on the same quarter last year. Its success was thrown into sharp relief by separate figures from German carrier Lufthansa which delivered an operating loss that was over €100 million worse than analysts forecast even though it reiterated its full-year guidance.

The figures were strong enough for Goodbody to raise its full-year profit forecast by 50 per cent, with NCB also adjusting its figures.

Brokers were also scrambling to upgrade their projections of packaging group Smurfit Kappa after it reported bullish first quarter numbers yesterday.

A positive supply/demand dynamic was cited as Irish analysts said they expected to adjust full-year figures by between 8 and 10 per cent in light of the figures.

A glimmer of light for Ireland Inc.