INTERVIEW:Ulster Bank's chief executive insists the bank will continue to be an intrinsic part of the economy, writes SIMON CARSWELL, Finance Correspondent

ULSTER BANK’S owner Royal Bank of Scotland (RBS) has written off £500 million (€563 million) of the goodwill remaining from the bank’s €887 million acquisition of First Active in 2003.

The write-off was not specifically disclosed in the bank’s 2008 annual results presentation on Thursday but will be outlined in the RBS annual report when it is published in the coming weeks.

Cormac McCarthy, chief executive of Ulster Bank Group, said that the write-off of the goodwill – the difference between the amount paid for the bank and its current net asset value – was part of a number of write-offs booked by RBS in the group on Thursday.

The British bank took a goodwill impairment of £16.2 billion, of which about 25 per cent was due to past US deals, notably US bank Charter One which the bank purchased for $10.5 billion (€8.3 billion) in 2004. About half the goodwill written off reflected the collapse in value of ABN Amro, which was bought in 2007 for €70 billion by an RBS-led European consortium of banks.

Mr McCarthy said the decision to merge First Active into Ulster Bank, winding down the lender from which he was promoted, had “some emotional content”. The move coincides with 750 job cuts within the Ulster Bank Group.

He said it was not an easy decision but it was the right decision as the mortgage, savings and investment markets in which First Active specialised had changed dramatically in the last year.

“It would be the wrong thing to perpetuate something that was not economically justifiable.”

He says he gets frustrated with the perception that the integration of First Active was something that had been imposed by RBS. He said local management drove the move and RBS blessed it. Mr McCarthy was speaking a day after Ulster Bank posted a 76 per cent drop in operating profit to £117 million for 2008 as impaired loans more than quadrupled, primarily due to higher bad development loans.

The sharp fall in profits pales into insignificance against the woes at Ulster Bank’s parent.

RBS made a £24.1 billion loss for 2008, the biggest in UK corporate history.

The bank is putting a portfolio of £325 billion in assets into a risk insurance plan guaranteed by the UK taxpayer. The aim is to protect the bank against toxic assets in a bid to free up lending.

Mr McCarthy said RBS had not used the term “toxic” in describing these assets, but had instead said there was “an element of risk” to them. “A portfolio effect seems to be more attractive than a toxic or bad bank, but that may change.”

He said he believed Irish assets would be included in the plan, but said the bank had not yet signed up to the scheme.

He believes it will be easier for the Minister for Finance, Brian Lenihan, to grapple with the toxic assets on the balance sheets of the Irish banks as their problem loans were “largely confined to property whereas the UK banking side is more globally encompassing”.

Mr McCarthy said the Minister has clearly indicated that “first-mover advantage” was not appropriate for Ireland when it came to removing bad debts from the banks, and that Mr Lenihan was taking “a more measured approach” to see how other governments addressed the issue first.

“If the Government can buy the right amount of time with what it is doing with the guarantee scheme, maybe learning from what others are doing is the right to do for a smaller economy with a different issue,” he said.

The Government was the first to move last September when it guaranteed all deposits at the Irish banks – a move that led to deposits moving out of UK-owned Ulster Bank into the covered Irish banks.

Mr McCarthy said the Government did what it had to do but Ulster Bank was “caught up in the law of unintended consequences”.

He regards the 173-year-old Ulster Bank, the country’s third largest fully-serviced retail bank, as being Irish, though being UK-owned excluded the bank from the State guarantee scheme.

“It was not the happiest time I’ve had in my career in banking. It was difficult partly because, as an institution, we see ourselves being an intrinsic part of the economy on the island. Being Irish is important to us.

“Second, on a practical level, it impacted on our business.” The term “foreign-owned bank” still rankles with McCarthy.

The UK government later moved further than Mr Lenihan with RBS.

It has already spent £20 billion rescuing the bank, following years of excessive lending and debt-fuelled acquisitions.

On Thursday, UK chancellor Alistair Darling agreed to invest a further £13 billion in the bank, bringing the British government stake in the bank to 70 per cent.

“We are very thankful to the British government for the support and that imbues straight through to our business in Ireland,” said Mr McCarthy.

He said Ulster Bank quickly made a case to remain a key part of RBS as soon as its troubles emerged last year.

Ulster Bank was described on Thursday by RBS as one of its core businesses.

Mr McCarthy said he has not had any concerns about his future or that of his management team.

“There was more concern that we would potentially be sold.”

Referring to some of the bank’s property loans, Mr McCarthy admitted that Ulster Bank had made mistakes, but that governments, regulators and customers had also erred and that others had to accept responsibility as well.

“Of course, with hindsight, mistakes were made – there is no question of that,” he said. “I don’t want to be an apologist for the mistakes banks have made. In many ways it is too easy to blame banks for everything. We have to take our medicine and our pain, but it is more fundamental than that.”

He says recent developments at Anglo Irish Bank were “truly surprising and disappointing. Most people in banking are generally taken aback with a lot of what’s happening,” he said.