Royal Bank of Scotland Group and Lloyds Banking Group injected €3.03 billion into their Irish units during the past 10 months amid rising real estate losses.
Records in Dublin’s Companies Registration Office show the two banks made a series of six payments, with the first in December and the most recent in August. RBS injected about €1.58 billion, while Lloyds sent €1.45 billion. The two banks were rescued by British taxpayers last year.
Royal Bank of Scotland is parent to Ulster Group, while Bank of Scotland (Ireland) is the Irish unit of Lloyds Banking Group.
“The scale of that figure is quite shocking,” Brian Lucey, associate professor of finance at Trinity College Dublin, said in an interview. “They weren’t leaders in the Irish market. The figure just shows the level of clean-up needed.”
British banks invested in Irish real-estate developers at the height of the Celtic Tiger boom and are now writing down investments amid the worst property slump in western Europe. RBS, 70 per cent government-controlled, and Lloyds, 43 per cent taxpayer-owned, were bailed out by Chancellor of the Exchequer Alistair Darling with £37 billion of public money 12 months ago.
The Irish bailout’s sterling cost is £2.8 billion, more than the £2.6 billion spent by British taxpayers on military operations in Afghanistan last year, according to House of Commons Defence Committee figures. This year’s Afghan costs are forecast to be £3.5 billion.
RBS spokeswoman Fiona McRae would not comment on whether the bank planned to send further aid to its Irish unit. Asked the same question, a Lloyds spokeswoman said it continued to provide capital and funding support “as we would do in the normal course of business and on an ongoing basis.” The Treasury was unable to offer immediate comment.
Irish impaired assets deteriorated following the “collapse in liquidity in the Irish property markets,” Lloyds said in its half yearly earnings statement. About 14 per cent of its Irish loan book was impaired at the half-year stage, the bank said.
In one case, RBS's Ulster Bank division backed developer Sean Dunne, who paid a then-record price of €380 million for land in Dublin's embassy district of Ballsbridge. His plans to build Ireland's tallest skyscraper of 37 storeys on the site were blocked by council officials. The site's value fell to no more than €100 million in March, The Irish Timesreported in March, citing unnamed property experts.
The CRO records show Ulster Bank Holdings (ROI) has received four capital injections from RBS since February. Lloyds has provided its Bank of Scotland (Ireland) Ltd. unit with two payments since December.
The banks’ payments to their Irish subsidiaries are surging. BoSI’s former owner HBOS sent the unit a total of €538 million in the five years from 2003 to the end of 2007, CRO records show. HBOS was taken over by Lloyds in January. RBS injected a total of €1.01 billion into Ulster Bank in the seven years from 2002 to 2008.
Ulster Bank, which operates across the Republic and in Northern Ireland, has about €40 billion in mortgages and other property lending, while Bank of Scotland (Ireland) has about €23.5 billion, Bloxham Stockbrokers analyst Kevin McConnell wrote in a research note on September 3rd.
House prices in Ireland have fallen 24 per cent from their early 2007 peak levels, mortgage lender Irish Life & Permanent said in a September 28th report. Commercial property prices may drop 75 percent while development land values may slump 80 per cent from their peak, Goodbody Stockbrokers said on Sept. 1.
The latest injection of €500 million euros in August is part of RBS’s “ongoing capital management,” spokeswoman Orla Bird said in a statement. She declined to comment further. Bank of Scotland Ireland spokesman Jamie Kennedy declined to comment.
Ulster Bank warned of rising loan impairments for the rest of 2009 as it reported a nine-fold increase in bad loans and a first-half loss of €8 million on August 5th. The bank has cut 750 jobs across Ireland and closed three-quarters of its 60 First Active mortgage branches.
At the top of the property boom in Ireland in 2007, LLoyds’ Irish unit posted a pretax profit of €272 million, up 28 per cent. In the same year, Ulster Bank profit rose 22 per cent to £513 million.
Bank of Scotland (Ireland) is the second-biggest holder of debt owed by developer Liam Carroll, a developer whose projects include the construction of Google's European headquarters in Dublin. He has failed three times to secure the protection of the courts for his companies, which owe €1.3 billion to banks.
The Irish government has propped up its two biggest lenders, Allied Irish Banks and Bank of Ireland with €3.5 billion each. The now-nationalised Anglo Irish Bank Corp. has received €4 billion in State aid.
Bloomberg