Is Ulster Bank going to quit Ireland?
The British taxpayer has sunk almost €18 billion into Ulster Bank, but the big question is whether it is in the interest of its owner to massively scale back its Irish operations.
It is a decision which has far-reaching ramifications for consumers, businesses and the economy.
Ulster Bank is owned by Royal Bank of Scotland, which itself is 81% controlled by the British taxpayer.
The British chancellor George Osborne has rightly set his sights on selling RBS in an effort to recoup the €53.5bn Britain used to rescue the bank from collapse.
However, much needs to happen before the British government could put the RBS on the block. For a start, the British government needs to decide if it wants to divide it into a good and bad bank.
RBS has hired consultants Rothschild and BlackRock to advise on such a split and they are due to report in the coming weeks. As part of that process it is understood they are having a long, hard look at operations in Ireland.
What they will see is a bank that has €23.5 billion of mortgages and has set aside €4 billion for impairments. That indicates that 18% of its residential loans are in trouble.
Meanwhile, Ulster Bank has announced a significant reduction in its number of branches, from 214 to between 175 and 185. It is also cutting staff numbers from 5,800 to between 4,000 and 4,800.
Despite all of this Ulster, which is run by New Zealander Jim Brown, maintains it is committed to Ireland.
However, if the RBS split proceeds it would see Ulster’s troubled assets going into a bad bank, which could drastically affect the future shape of its operations.
It is unlikely a buyer could be found for the bank. Another option would be to try to sell some loan portfolios and scale back massively.
Ulster Bank isn’t commenting on these options but sources say they are not part of its plans.
Ireland has already seen what the retreat of a foreign banks looks like and it certainly isn’t pretty.
Lloyds pulled the plug on Bank of Scotland Ireland, outsourced loans to Irish company Certus and closed its branches.
Danske shut its branches and it now instead has nine advisory centres around Ireland, while customers use post offices to deposit their cheques.
Ulster has already outsourced the management of some arrears work to RBS in Edinburgh.
In a note to staff, the IBOA trade union said the bank was reviewing its arrears support unit, adding that it would have “serious concerns” if more work was shifted from Ireland to Scotland.
It is speculated that RBS may try to do more of this work for other Irish banks.
If RBS decides to scale down its involvement in Ireland it would suck credit from the economy and damage competition in the banking sector to the advantage of the big two – Bank of Ireland and AIB.
Sources close to Ulster say there are no plans for selling off its loan portfolios. But judging by what has happened when other banks have decided to radically change gear, local management teams are usually the last to know.