AIB agrees to buy Ulster Bank’s €4.2bn corporate loan book

AIB has agreed to buy Ulster Bank's €4.2 billion corporate and commercial loan book, it confirmed on Monday.

The agreement with NatWest Holdings and Ulster Bank Ireland for the acquisition of the book of performing loans was reached further to the memorandum of understanding that announced the withdrawal of Ulster Bank from the Irish market in February.

As a result of the transaction, about 280 employees who are directly involved in the servicing of the Ulster Bank loan book will transfer to AIB. The final number of roles will be confirmed as the deal completes.

AIB will acquire the portfolio for a total consideration of €4.1 billion, equivalent to 97.63 per cent of par value, payable in cash funded from its existing resources.

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The exact size of the portfolio and consideration payable will depend on movements in the portfolio up to completion.

The transaction remains subject to customary regulatory approvals following which AIB intends to migrate the loan book on a phased basis over a period of 12 to 18 months to ensure “optimised customer outcomes”, it said.

The transaction is expected to boost its earnings in 2023. AIB said it expects customer loan net interest income of about €100 million (excluding discount unwind) and some incremental fee income per annum.

Increased operational costs as a result of the transaction are expected to be about €30 million per annum.

AIB said it will incur an expected credit loss charge as the loans migrate, which will impact on the contribution of the transaction in 2022.

Ulster Bank said there would be “no immediate change” for customers, and that it remains open for new and existing business for all customers. The transfer will not affect the legal and regulatory protections of impacted customers.

“Commercial banking relationship managers will continue to actively engage with business customers throughout the process,” the bank said.

Ulster Bank chief executive Jane Howard said: “I am confident that we are with AIB, delivering a good solution for our performing commercial loan book customers. While we await approval, there remains no change for customers.

“This agreement also includes the proposed transfer of colleagues wholly or mainly assigned to this loan book. We anticipate this to be about 280 colleagues and the final number of roles will be confirmed as the deal completes.

“We will continue to work with our colleagues and their representatives to manage this process in a fair and responsible manner.”

Ms Howard added that “talks continue” with Permanent TSB on other elements of its withdrawal from the Irish market.

AIB chief executive Colin Hunt said the "landmark acquisition" of the loan book would "further underpin the bank's ambitious growth plans".

“We continue to deliver on the strategy we announced last December to enhance and diversify our revenue streams and ensure AIB’s long-term sustainability,” he said.

“As we set out in our first quarter trading update, we are confident in the outlook for the remainder of the year.”

Financial Services Union general secretary John O’Connell said the announcement brings “certainty and clarity” for staff who will transfer with the loans to AIB.

“This has been a very unsettling time for staff in Ulster Bank so the conclusion of this deal subject to customary regulatory approval and negotiations with the FSU is welcome news,” he said.

“This is the beginning of the withdrawal of Ulster Bank from the Irish market, and it is important that the process is managed in a controlled way mindful of the effects that it will have on staff and customers.”