RBS pays heavily for Ulster Bank bailout

Royal Bank of Scotland Group has channelled the equivalent of almost a third of its £45.5bn (€53.6bn) government rescue into bailing out Ulster Bank after property loans soured.

Ulster Bank received a £2.93bn capital injection from its parent last year, bringing the total since 2009 to £14.3bn, according to filings lodged by the Dublin-based lender at the Companies Registration Office in the past week. David Gaffney, a spokesman for RBS, confirmed the figures.

The lender, acquired by RBS in 2000, doubled its assets to £55bn in the four years before Ireland’s property bubble burst, according to a report published in 2011 by the UK Financial Services Authority. While Ulster Bank accounted for only 3% of RBS’s assets in 2007, it has generated almost €13bn of bad loan losses, filings show.

“The severe losses suffered by certain UK lenders in Ireland partly reflects the aggressive lending practices they employed here,” said Philip O’Sullivan, chief economist at Dublin-based NCB Stockbrokers.

“Strategies that were heavily based on expanding market share have backfired, though improved appetite for Irish assets of late may offer an escape route for some of the remaining distressed loans in their portfolios.”

Ulster and Bank of Scotland, part of HBOS until that lender was rescued by Lloyds in 2008, competed “aggressively” with domestic competitors, offering new and riskier mortgages, according to a 2011 report on the country’s banking crisis commissioned by the Government.

Bank of Scotland, now part of Lloyds, introduced Ireland’s first mortgage where rates tracked the ECB benchmark rate in 1999. Ulster Bank’s First Active unit offered the first loan for 100% of the value of a home in 2005. Irish home prices have dropped 51% from their 2007 peak.

Lloyds pumped €8bn of capital into its Irish unit between late 2008 and 2010, when it let its local banking licence lapse and subsumed the loans into the London-based parent.

Ulster Bank’s net loss narrowed to £2.2bn from £2.8bn in 2011, as loan impairment losses fell 37% to £2.34bn. The capital injection from its parent last year was the smallest since 2009, the bank said.

additional reporting by Joe Dermody

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