RBS to study merger options for Ulster Bank

State-controlled Royal Bank of Scotland has commissioned investment bank Morgan Stanley to advise it on potential merger opportunities for its Irish unit, Ulster Bank, the business’s chief executive was quoted as saying yesterday.

Ulster Bank, which is the biggest bank in Northern Ireland and the third largest in the Republic, has racked up losses of £2.5 billion (€3bn) over the past two years. It accounts for less than 4% of RBS’s assets but was responsible for 20% of its bad debt charges last year.

“We think there may be further consolidation in the market. We’re looking to see if Ulster Bank can play a part in that,” Jim Brown said in a newspaper interview.

“There are a number of smaller institutions, without getting into the specifics, and there may be opportunities with those in terms of fulfilling our strategic ambitions, but I couldn’t mention specifically who they might be.” RBS chief executive Ross McEwan said last month that he wanted to develop Ulster as a challenger to Ireland’s biggest two lenders.

Earlier this month The Sunday Times said a team inside RBS was looking at tie-ups between Ulster and other Irish lenders, such as Permanent TSB or the Irish units of Danske Bank or KBC.

At the same time Finance Minister Michael Noonan said he would like a “significant” new bank with a big balance sheet to enter its lending market this year to drive competition in the diminished sector.

Noonan said he was looking at the possibility of overseas banks partnering with Irish lenders to create a competitor to AIB and Bank of Ireland.