Ulster Bank eyes RBS dividend as further bad mortgages sale planned

Bank swings into €15 million operating profit from €151 million loss for 2017

Recent speculation about another portfolio sale has prompted a spike in Ulster Bank mortgage-holders customers deep in default seeking to strike restructuring deal.

Ulster Bank, which received a £15 billion (€17 billion) bailout from its UK parent during the financial crisis, is aiming to return a third large dividend as it also progresses plans to sell another portfolio of problem Irish home loans, company executives said on Friday.

The Dublin-based lender transferred €3 billion of surplus capital on its balance sheet to Royal Bank of Scotland (RBS) between 2016 and early last year. It is estimated to have at least a further €1.5 billion of further excess equity on its balance sheet.

Speaking to The Irish Times after the lender reported a small profit for 2018, Ulster Bank chief financial officer (CFO) Paul Stanley said: "We have to pay more as we've too much capital." He added that any transfers are subject to regulatory approval. "There's probably more than one more robust payment to go," he said.

Mr Stanley said Ulster Bank is planning to proceed with another large sale of bad mortgages in the second half of 2019, after concluding the disposal of €1.4 billion worth of distressed home loans to US investment firm Cerberus late last year. This reduced the company’s non-performing loans (NPLs) ratio to 11.3 per cent of loans from 16.7 per cent, at a time when regulators are pressing euro-zone lenders to meet the European average, which stands at about 3.5 per cent.


Restructuring deals

Recent speculation about another portfolio sale has prompted a spike in customers deep in default seeking to strike restructuring deals, according to Mr Stanley. Ulster Bank’s new chief executive, Jane Howard, indicated this is likely to be a function of borrowers being in a better position to service their mortgages in a recovering economy as well as people trying to avoid having their loans sold to an overseas investment fund.

Ulster Bank swung into a €15 million operating profit in 2018 in the Republic from a €151 million loss for 2017, with the previous year’s performance having been hit by large provisions for the tracker mortgage scandal and problem loans that were being prepared for sale.

The Irish unit booked an additional €78 million of provisions to deal with “conduct and litigation” costs. It has set aside a total of about €500 million of such provisions since 2015, according to Mr Stanley. Almost €300 million of this relates to its exposure to the tracker-mortgage scandal , affecting about 5,500 of its customers.

Ulster Bank has been the slowest among the State’s five main retail banks in making refunds and compensation payments due to legacy IT issues at the company. Ms Howard said the final 500 affected customers are to be dealt with by the end of April.

The other overcharging cases relate to a “multitude of items” as the bank went through its consumer and business loan books in recent years, said Mr Stanley. This includes about 18,000 business customers whom, the bank disclosed last June, it had overcharged in cases going back six years.

Meanwhile, RBS’s reported £1.6 billion of net profits for 2018 beat market expectations and prompted the group to unveil a better than expected dividend for long-suffering investors.

In the North, Ulster Bank posted a pretax profit of £51 million before tax, down from £59 million in 2017. It said new mortgage lending had grown by more than 30 per cent, while new corporate lending was ahead by 15 per cent. – Additional reporting: Reuters

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times