RBS in talks on Ulster Bank investment

Royal Bank of Scotland is already in discussions with private equity firms about a possible investment in Ulster Bank, according to a person familiar with the situation.

There is a “fair amount of interest” in doing a deal, with a conclusion to negotiations possible before the bank releases its second-quarter results in July or August, said the source.

Ulster Bank will release its results for the first quarter on Friday, which are expected to show “a positive set of numbers”.

The Sunday Times reported that RBS is preparing an approach to a number of private equity firms — including KKR, Blackstone, and Carlyle — about a possible investment in Ulster Bank.

These negotiations are already under way, said the source.

There are three possible scenarios for Ulster Bank’s future, according to the source. The first is that it continues with its current restructuring strategy and remains part of the RBS group.

The second option would involve a merger with either Permanent TSB and possibly KBC or Danske Bank in order to create a third banking force in the Irish market.

The third option is attracting investment from a private equity firm, which is the most likely outcome.

“Ulster Bank is on course to return to profitability this year. It would make a good investment for a private equity firms,” the source said.

“How that would happen remains to be seen. It could involve an investment in Ulster Bank so that it can invest and grow the business in Ireland or it could involve an equity release for RBS. But it certainly won’t be a case of a private equity firm investing to cover losses in Ulster Bank.”

A merger with Permanent TSB is seen as the least likely outcome as the 99.2% State-owned bank is still loss making and awaiting approval from the EU for its restructuring plan, said the source.

There has been a huge amount of uncertainty over the future of Ulster Bank since GeorgeOsborne, Britain’s chancellor of the exchequer, in June 2013 said RBS could be split into a good bank/bad bank with Ulster Bank potentially in the bad bank.

A major review of the 81% UK taxpayer-owned RBS, which was released in November, concluded that Ulster Bank should remain part of its core operations.

However, RBS management is still looking at ways of reducing its exposure to Ulster Bank. It has pumped £15bn into its Irish subsidiary to cover losses since the property market collapsed in 2008.

If RBS was successful in attracting private equity investment, it is unclear if it would still retain a stake in Ulster Bank or attempt to make a complete exit.