THE BRITISH GOVERNMENT is reportedly considering a plan which would see it ask the Irish Government to buy Ulster Bank, the last remaining major retail bank in Ireland outside of partial state ownership.
Ulster Bank is currently owned by the Royal Bank of Scotland (RBS) Group, which itself is majority owned by the British taxpayer following a series of recapitalisations in 2008 and 2009.
While the RBS group has crept toward profitability in the last few years, gradually offering some payback to its public owners, Ulster Bank has continued to be loss-making – recording losses of €195 million in the first quarter of 2013.
BBC News reports that a report commissioned by the Treasury, the UK’s equivalent to the Department of Finance, has now called for RBS to be split into a ‘good bank’ and ‘bad bank’ so that the profitable arm of the business could be freed up to engage in more lending.
However, it also reports that a second option is also being assessed – with Ulster Bank being earmarked for separation from the rest of the RBS Group, possibly through a sale of the bank to the Irish government.
The BBC’s business editor Robert Peston says this could be achieved by swapping ownership of Ulster Bank for the British investments and loans currently held by Ireland’s own bad bank, the National Asset Management Agency.
Ireland is unlikely to play ball with such a move, however, as it would see the government take ownership of the last major retail banking chain which does not already have some degree of state ownership.
As a result of investments made by the State during the financial crisis, the taxpayer already owns 99.8 per cent of AIB and its subsidiary EBS, 99.8 per cent of Permanent TSB, and around 15 per cent of Bank of Ireland.
Another complicating factor is that Ulster Bank operates in both Northern Ireland and the Republic, with the two bodies organised within RBS as a single entity – meaning significant restructuring would be needed if the Irish taxpayer was to avoid directly taking over a bank in the North.
A further disincentive is the fact that NAMA’s British portfolio is seen as performing particularly well, given how the UK’s real estate market has recovered in recent years, in comparison to the mixed performance of Irish development projects.
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