An exit of Ulster Bank from the Republic marks the second banking crisis in 10 years, with grim consequences for customers of all banks, leading industry figures and banking economists have warned.
The countdown to the decision taken by Ulster Bank’s owner, the NatWest Group in Britain, had taken an extraordinarily long time.
It emerged last September that NatWest, the banking giant formerly called RBS, had unexpectedly put up in the air the future of Ulster Bank in the Republic. Like most of the main Irish-run players since the financial crisis, NatWest is still majority-owned by the British government.
As the economic crisis from the Covid-19 pandemic in Britain and Ireland unfolded, it appears that NatWest had decided by late summer to weigh up a decision over whether to stay in the Republic. The Financial Services Union, or FSU, got wind that all was not right after local managers of Ulster Bank unexpectedly ended planned discussions with staff representatives over long-term pay and conditions.
It emerged that NatWest had ordered a review of its operations in the Republic, leaving every option on the table, including that of winding down the lender over a number of years.
The silence since September from the Ulster Bank owner over the future of hundreds of staff north and south will go down as a particularly cruel episode in the history of corporate decision-making in Ireland.
It appears that Ulster Bank local managers – the bank in the Republic is run by chief executive Jane Howard – had apparently been under orders not to discuss the review, and media queries were directed to a NatWest in Edinburgh.
Leading banking analysts had long decided the unusual silence about the future of a major player meant that NatWest had already made up its mind to pull out of the market in the Republic.
As the months passed, the FSU passed on their increasing fears to politicians in Dublin and Belfast.
In recent weeks, TDs have expressed alarm on reports that NatWest was considering, or had already been approached by, offers to carve out large parts of the €20.5bn loan books.
Concerns that NatWest had decided to wind down Ulster Bank only increased after reports it may be willing to sell off parts of its SME loans, worth between €2bn to €3bn, to Permanent TSB, a transaction that would do little to boost the abysmal level of competition in the Irish market for lending to small firms.
Those concerns turned to alarm when vulture funds were said to be also interested in buying parts of Ulster’s €15bn in mortgage loans. And this week, the chair of the Oireachtas Finance Committee John McGuinness said the committee might recommend legislation barring vulture funds from buying Ulster loans if the lender failed to engage with politicians.
The FSU has argued that because PTSB is 75%-owned by the State that there should be a role for the Government and the Central Bank to intervene in the review with NatWest.
Ulster Bank is the third-largest mortgage and corporate lender in the Republic and has 88 branches and employs 2,800 people in the south, with a further 600 people in a head office in Belfast whose future is also under threat, the FSU has warned.
In the Republic, Ulster has a total loan book of €20.5bn. The mortgage book of about €15bn is some sort of counter-weight to the dominance of the banking duopoly in mortgage lending long enjoyed by AIB and Bank of Ireland.
In the North, it is the number one or number two lender to Danske depending on the banking market. The Northern operations were excluded from the review, which some banking experts say suggests that NatWest could be intent to running the Northern operations from an office in northern England, and run down its Belfast-based operations.
Until the review, however, the Ulster Bank owner, and the British government, had stuck with Ulster through thick and thin. During the boom 15 years ago, top Ulster Bank chiefs talked about their ambitions of using the firepower provided by the parent group in Edinburgh – then driven by Fred Goodwin – to break the longstanding grip secured over Irish banking by AIB and Bank of Ireland.
The unfettered bank lending boom that was fuelled by lending to property developers ended in an economic crisis for Ireland. Thanks to mishandling by the ECB in the early stages, the European banking crisis threatened Ireland's remaining in the eurozone.
Irish taxpayers paid out €64bn that helped save two so-called pillar banks, AIB and Bank of Ireland.
In the crash, Ulster Bank, north and south, cost its British government-owned parent £15bn (€17.2bn). Until the onset of the Covid-10 crisis, NatWest was drawing back to Britain significant amounts in dividends from Ulster to make good some the huge losses from the financial crisis.
Ulster Bank survived the financial crash but in recent years was severed in two parts, with separate managers installed for the bank in the Republic based in George’s Quay in Dublin and in Donegall Square in Belfast.
Experts warn the consequences of an Ulster exit will be far-reaching. Irish banks already charge among the costliest loans in Europe for mortgages and for their lending to small firms.
There are ostensibly 10 mortgage banks lending out home loans, but two of those, EBS and Haven, are part of the same banking group, AIB.
“The two big players have almost 60% between them so the remaining five players will be fighting over the rest, and Ulster’s 14% of the home loans will be up for grabs," said Michael Dowling, a leading mortgage broker.
Mr Dowling said the news of the Ulster Bank review was already having a big effect on competition.
Since September, he said he has advised customers who he would normally direct to Ulster’s home loan rate of 2.2% fixed for five years that the loan could after five years be in the hands of AIB, Bank of Ireland, or a vulture fund like Cerberus.
“They could decide to charge you a variable rate of 4% after five years, and no one would be able to stop them,” Mr Dowling said. There would be greater demand for "a super rate and a super product" but for the uncertainty caused by the review, he said.
He said that even with Ulster, the Irish mortgage market has long been skewed. Bank of Ireland and AIB, through its EBS lender, have had enormous firepower “to throw money at the competition” by offering cashback home loan promotions and outspend rivals in advertising.
He said despite the entry of new lender Avant Money last year, “there are no sleepless nights being had at Bank of Ireland or AIB head offices".
“They just know that their presence is so big that they do not have to respond to Avant in any meaningful way,” he said. “The two dominant players are going to become more dominant,” he said.
Mr Dowling said that though not a great believer in State intervention, the scale of the crisis requires the Government and Central Bank to look at capping the level of interest rates that banks are allowed to charge.
Business consultants are worried the exit of Ulster will make it worse for small companies to emerge from the Covid-19 crisis.
“A lot of SMEs are going to find it very difficult to get a banking facility and it will accelerate the number of insolvencies and that will be a hammer blow to the SME sector,” said John Whelan, managing partner at the Linkage Partnership, who was formerly head of the Irish Exporters Association. “This is a real upheaval,” Mr Whelan said.
“The State will have to create a State bank or offer a sweetheart deal for someone else to step in. I know they don’t like to do it, but when there has been a market failure, the Government has to step in,” Mr Whelan said.
Banking expert Ray Kinsella, formerly a professor at the UCD Smurfit Business School, said he has long believed a new start is called for in Irish banking, with the Government needing to step in to create a national bank that is not required to return dividends to shareholders.
“The model hasn’t worked and having Ulster exit will leave a catastrophic gap in the Irish banking market,” Mr Kinsella said. He argues that the country and the economy need a national development bank that would also tap the network of credit unions and post offices.
Dermott Jewell, policy adviser at the Consumers’ Association of Ireland, said attracting new players had proved incredibly difficult since the financial crash. He said there has been a market failure and the Government will have to intervene in some way.
John Teeling, Ireland’s most successful serial entrepreneur and founder of the Teeling Whiskey dynasty, said his family business has been a customer of Ulster for 15 years and the lender had from the start understood his industry.
“An exit introduces more uncertainty at a time of economic stress,” Mr Teeling said.
Senior economist Jim Power said the Government will have to get involved in some way because the Irish banking market hasn’t been working for a long time.
Capping interest rates for mortgages and small firms “or whatever it takes, the State has got to get involved”, Mr Power said.
“AIB and Bank of Ireland are not competing as banks should and an exit by Ulster shows that we do not have a proper banking system,” he added.