Uncertainty over Ulster Bank’s future

Uncertainty will hang over the future of Ulster Bank until the UK Treasury conducts a review in the autumn that will decide its fate.

On Wednesday night, in his annual Mansion House speech, Chancellor of the Exchequer George Osborne floated the idea of splitting Royal Bank of Scotland into a good bank/bad bank.

“We’ll look at a broad range of RBS’s assets, but particularly assets in Ulster Bank and UK commercial real estate. We’re not prepared to put more taxpayer capital into RBS as part of this process.”

A source close to the UK Treasury said if the decision is made to proceed with a bad bank, then it would take over roughly 15% of the group’s distressed assets.

“Fifteen per cent of the group balance sheet would be £120bn. Ulster Bank and the UK commercial real estate assets account for £105bn, so if there are other assets included in the bad bank, that could mean that only some of Ulster Bank’s assets are included in the bad bank,” said the Treasury source.

It is not known if Ulster Bank would be sold or wound down if the entire bank was transferred to a bad bank. A Treasury spokesperson declined to comment.

There has been speculation about Ulster Bank’s future over the past few years. It has shipped huge losses through its exposure to the Irish property market. RBS has had to pump £14bn into its Irish subsidiary to cover losses. RBS is 81% owned by the UK taxpayer.

A spokesman for Finance Minister Michael Noonan said that the Government noted Mr Osborne’s speech and is anxious to see Ulster Bank remain in the Irish market.

Mr Noonan would not be concerned if the outcome was Ulster Bank’s distressed assets being transferred to a bad bank.

“This Government has maintained very good relations with the UK Government since coming to office two years ago. The Minister for Finance has met with the Chancellor frequently to discuss financial and economic matters. The Minister for Finance has previously acknowledged that the Chancellor was very supportive of the reduction of the interest rates on Ireland’s EU assistance and there was a similar reduction of the interest rate on the UK bilateral loans,” said the Finance spokesman.

“The Minister for Finance, through NAMA’s role as one of the largest vendors of UK commercial real estate, may also be able to provide useful information on the UK commercial real estate market as well.”

The head of the Irish Bank Officials Association (IBOA), Larry Broderick, has demanded an immediate meeting with Mr Osborne to discuss Ulster Bank’s future.

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