Ulster Bank needs a white knight but it certainly won’t be Belgian bank KBC

Belgian bank says focus in Ireland is to return to profit in 2016

“Unless a private equity white knight comes riding over the hill, it could end up being a case of as you were [for Ulster Bank]. At least until 2016.” Photograph: Frank Miller

“Unless a private equity white knight comes riding over the hill, it could end up being a case of as you were [for Ulster Bank]. At least until 2016.” Photograph: Frank Miller

Wed, Jun 18, 2014, 01:00

We now know that whatever comes of Royal Bank of Scotland’s strategic review of Ulster Bank, it won’t involve KBC Bank Ireland. At least not until 2016.

At a session with investors yesterday, the Belgian institution said its focus in Ireland is to return the bank to profit in 2016 and to focus on building out its consumer retail offering – current accounts, personal loans, credit cards and such like.

“First priority for Ireland is to become profitable from 2016 onwards. As of then, all available options (organically grow a profitable retail bank, build a captive bank-insurance group or sell a profitable bank) will be considered,” KBC said.

This would also seem to rule it out of any third banking force Minister for Finance Michael Noonan has spoken about in recent months.

To recap, RBS announced in February that it would carry out a strategic review of Ulster Bank’s operation in the Republic. It later appointed Morgan Stanley to carry out the bulk of this work.

Ulster Bank’s business in Northern Ireland is to forge closer ties with RBS in Britain, effectively separating it from the Republic. In addition, RBS has taken £9 billion in toxic loans away from Ulster Bank to a centralised restructuring group.

Talks

RBS’s advisers are reported to have held talks with private equity giants Warburg Pincus, CVC, KKR and Permira with a view to them possibly investing in Ulster Bank. That would effectively be stage one of the process.

Stage two would involve a merger with another Irish bank. With KBC now seemingly out of the picture, Permanent TSB, which is 99.2 per cent owned by the State, would seem to be the only viable player in that space.

Investec, which currently has a niche presence in Ireland, is thought to be unlikely to be interested in such a deal, and there is no queue of foreign banks waiting to enter the Irish market.

At a later date, the enlarged Ulster Bank might be floated on the stock market, presumably to give its private equity backers an exit, not to mention RBS.

RBS’s appetite to do a deal is unquestioned, but that’s not to say that one will be concluded.

An information memorandum for interested parties is still some weeks away, I’m told, and it seems unlikely there will be any significant commentary on Ulster Bank’s future when RBS publishes its half-year results on August 1st.

Speculation around private equity interest in Ulster Bank is easy to understand. For a start, Ulster Bank is expected to make a profit this year – that’s a profit for the whole year as opposed to a return to the black at some point in 2014.

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