A management-supported private equity takeover of Ulster Bank is being considered by Royal Bank of Scotland.
Price of €500m to €2.5bn, depending on assets included
The broad outline of the deal would see a private equity firm, most likely either KKR or Apollo, take over Ulster Bank, with the current management team, led by chief executive Jim Brown, staying in place.
The price would be in the range of €500m to €2.5bn, depending on what assets are included, according to one person with knowledge of the negotiations.
However, the viability of this potential deal depends on RBS taking over some of Ulster Bank’s distressed assets and providing an indemnity against future losses. RBS is 82% owned by the British government, which would make an indemnity against future losses politically sensitive.
It is believed that John Duffy, vice chairman of the New York-based investment firm Keefe, Bruyette & Woods, is acting as an adviser on the deal. Mr Duffy did not return any requests for a comment. Morgan Stanley is advising RBS.
Negotiations have taken place over recent months, but they have been put into abeyance while RBS completes an internal review of its operations.
Ulster Bank in the North would be integrated into the NatWest network, which is also part of the RBS Group.
RBS has pumped £15bn (€19m) into Ulster Bank to cover losses incurred since 2009. There has been speculation about its future since a June 2013 speech made by Britain’s chancellor of the exchequer, George Osborne, about splitting RBS into a good bank/bad bank, with Ulster Bank possibly going into the bad bank.
Another source familiar with the situation said these talks have not progressed beyond identifying the outline of a deal.
Any takeover would not be concluded until the results of Ulster Bank’s asset quality review and stress test as part of the ECB’s comprehensive assessment of the banking system are published in October.
Ulster Bank and RBS both declined to comment.
It is believed that RBS is looking at three or four options on the future of Ulster Bank.
Mr Osborne has said on a number of occasions that he would like to see RBS returned to the private fold as soon as possible. A more simplified structure, excluding Ulster Bank and other international assets, is seen as an important step in attracting investment.
Ulster Bank returned to profitability over the first three months of this year following five years of losses and is considered as a potentially lucrative player in the recovery of the Irish economy.
There has been speculation that Ulster Bank and Permanent TSB would be merged to form a third banking force.
However, these talks have not progressed beyond initial exchanges between the Department of Finance and the British exchequer.
According to market sources, an Ulster Bank takeover of EBS would make much more strategic sense, although it is unlikely that AIB would be willing to sell one of its key assets.
© Irish Examiner Ltd. All rights reserved