RBS chief insists €11.8bn injected into Ulster Bank was 'too much'

ULSTER BANK’S parent company, Royal Bank of Scotland (RBS), injected as much as £4 billion (€4.7 billion) into Ulster Bank last year, bringing its total investment in its Irish subsidiary to £10 billion (€11.8 billion) since 2008.

Speaking as RBS and its subsidiary reported increased losses for 2011, RBS chief executive Stephen Hester said that RBS, which is 83 per cent owned by the British tax-payer, had pumped “too much” money into Ulster Bank.

“The most money that RBS lost, the least wise decisions, were property lending in the UK and Ireland, of which Ireland was the worst of all,” Mr Hester told analysts yesterday.

Accounts for 2011 show operating losses at Ulster Bank jumped by 35 per cent last year from £761 million in 2010 to £1.024 billion, as income fell and impairments rose.

Ulster Bank continued to be a drain on the overall performance of RBS. Return on equity – a key profitability metric – was 16.6 per cent for RBS’ retail and commercial business when Ulster Bank is excluded. Including Ulster Bank, the return on equity was 11.3 per cent, though this was up from 10.2 per cent in 2010.

Ulster Bank’s total impairment losses rose by 19 per cent from €1.161 billion to €1.384 billion, with mortgage impairments almost doubling from £294 million to £570 million. Impairment losses on corporate loans were slightly down on the previous year.

Speaking to The Irish Times, Ulster Bank chief executive Jim Brown said the rise in mortgage impairments reflected a big increase in delinquencies throughout the year, as well as falling asset values.

Some 14,000 Ulster Bank customer mortgages had been restructured, he said, either through extending the term of the mortgage, payment holidays, or other forms of restructuring.

Ulster Bank’s delinquencies were in line with the Central Bank average, and the bank has been “quite active” in liaising with the Central Bank over the mortgage arrears issue, he added.

Asked about the Government’s proposed Personal Insolvency Bill, Mr Brown said it was important that it does not become the automatic default option for borrowers. “No doubt there is a need for change. At the same time there is a need to get it right.”

The 2011 figures also show that total deposits at Ulster Bank fell by 4 per cent on a constant currency basis last year, reflecting an outflow of wholesale deposits due to rating downgrades. Retail and small business deposits increased during the year, while customer numbers rose by 2 per cent.

Income fell by 7 per cent as a result of the unit’s shrinking balance sheet, and pressure on net interest margin as competition for deposits intensified.

The fall in income was offset somewhat by cost savings, the bank said.

Last month Ulster Bank announced its intention to shed 950 jobs, including 600 in the Republic.

The bank, which employs around 6,000 people, has offered 3½ weeks’ salary (capped at two years’ salary) for every year worked, inclusive of statutory redundancy, a proposal that has been rejected by the Irish Bank Officials Association.

Mr Brown said yesterday that the redundancies were “necessary unfortunately” and that the company was currently in the middle of the 90-day consultation process with unions.

The bank shed 1,000 staff in 2009.