Competition watchdog 'faces Catch-22 over Ulster Bank mortgage loans'

The regulator "is in a difficult position, because clearly there is no alternative buyer," says Ronan Dunne of Philip Lee LLP.

Ronan Dunne, partner and head of competition, regulated markets and EU Law at Philip Lee LLC.

The competition watchdog faces "a real Catch-22" as it considers the plans by the two major banks to take on billions worth of mortgage loans from Ulster Bank and KBC Bank, a leading EU law expert has said. 

Ronan Dunne, head of competition and EU law at Philip Lee LLP, said the decision by the Competition and Consumer Protection Commission, or CCPC, to approve plans by AIB to acquire €3.7bn in commercial and corporate loans from Ulster Bank while at the same time highlighting its concerns, showed that the watchdog was "in a difficult position". 

The CCPC had submitted the AIB and Ulster plan over the business loans transaction to a full so-called Phase 2 investigation, but gave the go-ahead as it acknowledged that "international evidence shows that higher concentration in banking services is likely to have a detrimental effect on competition". 

On Friday, AIB doubled up on its Ulster Bank agreement by confirming it now plans to secure €6bn in tracker loans from Ulster.

The competition watchdog is also investigating an agreement at a Phase 2 stage for Bank of Ireland to secure €9bn in mortgage loans for KBC Bank, which is also closing its doors in the Republic. 

Industry figures have called on the CCPC to impose conditions on AIB, Bank of Ireland, as well as on Permanent TSB, which is also involved in plans to carve out the loan books from Ulster and KBC.   

However, Mr Dunne said the read across from the watchdog's decision on the Ulster Bank business loans transaction suggests it will also approve the transactions involving mortgage loans.

He said the CCPC was saying there was no alternative because Ulster was leaving the market, even as the watchdog points to evidence that consolidation affects competition.  

"It is in a difficult position, because clearly there is no alternative buyer," said Mr Dunne. 

The Ulster Bank customers will need to be serviced when Ulster leaves the market, and Ulster is leaving the market. It is a real Catch-22 for the CCPC." 

In its ruling, the watchdog had cited evidence that increased market concentration would likely have adverse "outcomes for business borrowers in terms of pricing, innovation, and service". 

"This is substantiated by some of the business customers contacted by the CCPC, who indicated that they had concerns with the exit of Ulster Bank from the State," it said.  

AIB chief executive Colin Hunt said the approval by the CCPC over the commercial loans was a further “important milestone”. 

The bank's latest plan will also require approval from the competition watchdog.      

The Government owns a stake of just under 70% in AIB, and Finance Minister Paschal Donohoe welcomed the agreement.

The successful conclusion of this transaction by AIB would be very positive in providing a significant number of Ulster Bank customers with certainty as to the destination of their mortgages,” he said. 

"I am hopeful that these discussions will lead to a successful outcome; however, I do appreciate that the conclusion of this transaction is subject to normal due diligence, agreement of final terms, as well as obtaining appropriate approvals.”