AIB cleared to buy €5.7bn Ulster Bank tracker mortgage portfolio

The competition watchdog has given AIB the green light to acquire a portfolio of performing tracker mortgages from Ulster Bank worth €5.7 billion.

In June, AIB said it had agreed to acquire the portfolio of 47,000 Ulster Bank loans for a total of €5.4 billion, a 5 per cent discount on its overall value, subject to regulatory approval from the Competition and Consumer Protection Commission (CCPC). The discount factored in the low profitability of the portfolio.

On Friday the CCPC said it had approved the acquisition, the final such determination it will make in relation to the four mergers notified to the watchdog following the announcements that Ulster Bank and KBC Bank would be leaving the Irish market.

The watchdog approved AIB’s purchase of a €4.2 billion tranche of commercial loans from the NatWest-owned lender last year subject to a number of remedies. Separately, the CCPC also approved Bank of Ireland’s purchase of certain KBC assets valued at more than €9 billion in May, and Permanent TSB’s acquisition of Ulster Bank’s retail, SME and asset finance business, valued at €7.6 billion.

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The CCPC said on Friday that following an “extended phase one investigation” into the proposed deal, it determined the acquisition “will not substantially lessen competition for goods or services in the State and, therefore, the proposed acquisition may be put into effect”.

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The watchdog said it would publish its full determination within 60 days.

AIB, which is known to have faced competition from US investment powerhouse Pimco and London-based M&G Investments for the Ulster Bank tracker mortgages, said last year the transaction would start feeding into its earnings from 2023.

The bank expects to generate about €90 million of total income from the portfolio on an annualised basis, it said at the time.

In a stock exchange filing following the announcement, AIB said the transaction would reduce its common equity Tier 1 capital ratio, a key measure of financial strength, by about 60 basis points, “reflecting increased risk-weighted assets of circa €2.5 billion in relation to the portfolio”.

It said the transaction and the transfer of customer to AIB would be completed in the first half of the year.

AIB chief executive Colin Hunt said the CCPC approval was “another important milestone in the group’s transformation”.

He said: “We look forward to welcoming these new customers from Ulster Bank as well as the many more new customers we are pleased to welcome to the group as the Irish banking landscape evolves.”