Ulster Bank facing more cuts as RBS seeks capital boost, say analysts

Focus falling on Ulster Bank after RBS failed Bank of England stress test this week

Ulster Bank is likely to face more cuts as its parent RBS tries to boost capital after failing Bank of England stress tests, according to analysts. They also expect the Edinburgh-based lender's investment banking activities to be curbed.

RBS may need to dispose of £44 billion (€52 billion) of risk-weighted assets to improve its capital buffers, analysts at Barclays wrote in a note to clients on Thursday.

"The current Irish efficiency position looks untenable," UBS analysts wrote on Wednesday. With Gerry Mallon taking on the top job at Ulster Bank in June with a mandate to cut excess costs and improve returns, "the market will be looking for evidence of delivery in 2017", they said.

RBS chief executive Ross McEwan is coming under increasing pressure to return RBS to profitability and financial resilience eight years after the bank required a £45.5 billion UK taxpayer bailout. On Wednesday, the lender agreed with regulators to revise its plans to bolster capital after failing the Bank of England's annual health check. Mr McEwan is on track to report RBS's ninth straight annual loss in February, while looming charges for past misconduct and failure to sell its Williams and Glyn unit are undermining his turnaround efforts.


Ulster costs

Ulster Bank has the highest costs in relation to revenue of any RBS business, at 101 per cent in the first nine months of 2016. The lender was already focusing on cutting costs at Ulster Bank before the outcome of the stress test, according to John Cronin, an analyst at Goodbody Stockbrokers in Dublin.

Mr Mallon said on Thursday that Ulster Bank remained an “integral part” of RBS and had increased in “strategic importance” since the Brexit vote.

RBS has slashed risk-weighted assets at its investment bank by two-thirds to £36.6 billion since the end of 2014 and the bank is also cutting costs from legacy computer systems built for a global securities division that no longer exists.

About £200 million of annual expenses at the securities unit through to 2020 come from investment to replace its IT system and enable the lender to cut administrative jobs, according to UBS. – (Bloomberg)