Donohoe thrusts Permanent TSB centre stage to alleviate crisis as Ulster Bank bows out

NatWest came to the decision after unexpectedly launching a review last year into the future of its 88 branches and €20bn in home loans and corporate lending in the Republic
Donohoe thrusts Permanent TSB centre stage to alleviate crisis as Ulster Bank bows out

Members of the Oireachtas finance committee expressed concern about vulture funds buying loans from Ulster Bank which is departing the Republic. Picture: Dan Linehan

The owner of Ulster Bank — Britain’s NatWest Group — has confirmed it plans to wind down its operations in the Republic, a decision that will dramatically reduce competition and puts at risk around 3,000 jobs.

NatWest came to the decision after unexpectedly launching a review last year into the future of its 88 branches and €20bn in home loans and corporate lending in the Republic.

AIB and BOI to benefit

The decision to quit by the bank — which employs in all 2,800 staff, including people in Belfast and in Edinburgh working in support operations — is unprecedented for a major player in Irish banking and will further strengthen existing lenders, in particular the dominant banks AIB and Bank, which command well over 50% of all mortgage lending.

The decision to quit has already launched a scramble for parts of its loan books from rival banks. The Government also revealed its hand in an attempt to use Government-controlled banks, AIB and Permanent TSB, to help alleviate some of the crisis.     

Agreement with AIB

Ulster revealed that it has all but reached an agreement with AIB to buy €4bn worth of its corporate loans, with a final agreement over price still to be struck. 

Experts said that the prospective deal has raised eyebrows because it will further strengthen the grip that AIB and Bank of Ireland have over Irish corporate banking. 

However, Ulster also said it was in early talks with another Government-controlled bank, Permanent TSB (PTSB), and other unidentified “strategic banking counterparties” over the sale of other loans.

Finance minister Paschal Donohoe told reporters that the PTSB deal was at an early stage, but it nonetheless pointed the way to help resolve some of the competition concerns entailed by the departure of Ulster Bank, the third-largest lender in the Republic. 

Risk of reduced competition

There was a risk of reduced competition, but the potential role for PTSB could help ease some concerns, Mr Donohoe said. He also said it was possible that non-bank entities could be involved in the purchase of loans. 

Ulster Bank's figures show that about €1.5bn of its loans were non-performing at the end of December, and such loans have in the past been bought by vulture funds from mainstream Irish lenders. 

Mr Donohoe also said he was opposed to further controls over loan sales or imposing caps over interest rates that Irish banks charge their customers. 

Finance committee members' concerns

His comments come after John McGuinness, the Fianna Fáil chair of the Oireachtas finance committee, and Sinn Féin finance spokesperson Pearse Doherty, said they opposed vulture funds playing any part in buying loans from the departing Ulster Bank. 

Mr McGuinness blasted what he said was the Government's failure to protect the loans of small businesses from "being thrown to the vulture funds". 

AIB and PTSB will take the top-grade Ulster loans while "the pickings and the rest of the loans will be thrown to the vulture", he said.

Mr Doherty said that there was an opportunity to try and transform PTSB but there was a continuing concern that much of the loan book would fall into the hands of vultures. 

'PTSB should be built up'

Mr Doherty said he favoured also building up PTSB not only in terms of mortgage loans but its ability to bulk up in SME lending too.  

According to a leading industry expert, PTSB is likely to have an appetite to buy as much as €7bn in Ulster loans, of which €5bn would likely be in mortgage loans. 

The expert said that PTSB could likely finance the deal by calling on the Government for around €200m, but the bill would be less if existing shareholders participated in the funding deal.

Isme support for PTSB recapitalisation 

Neil McDonnell, chief executive of Isme, said the business group would support any State recapitalisation of PTSB if it needed the funds to buy Ulster loans.                 

Ulster parent NatWest said it had decided that Ulster Bank in the Republic will not be able to make good returns any time soon and it “will begin a phased withdrawal from the Republic of Ireland over the coming years”.

It revealed Ulster made an operating loss of €255m last year as its impaired loan losses climbed to €281m, as a result of the Covid-19 crisis.

Experts have said the decision to exit will mean that there is little chance that the cost of mortgage and borrowings to small firms — which are already among the highest in Europe — will fall any time soon. 

Union: 'A very bad day'

John O'Connell, general secretary at the Financial Services Union, said it was "a very bad day".

Economists and banking consultants have called on the Government to set up a State-owned bank to plug the gap that will be left by Ulster Bank’s departure and bring in legislation to cap the cost of borrowings for mortgage and corporate borrowers.

Mr Donohoe said that there were already plans to expand the remit of the Strategic Banking Corporation of Ireland but he did not see it being able at this stage to plug the huge gap left by Ulster's departure. 

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