Ulster Bank asks Central Bank if it can make payment to RBS

Ulster Bank has applied to the Central Bank of Ireland for the green light to use some of its surplus capital to make a payment to its parent company, Royal Bank of Scotland.

This would be the first repayment by Ulster Bank to RBS of the £15 billion bailout that it got after the 2008 global financial crash.

In an exclusive interview with Business This Week, Gerry Mallon, the new chief executive of Ulster Bank in the Republic, said it is hoping to pay a €1 billion-plus sum this year to RBS and re-establish a regular stream of dividends after that.

“We’ve made our application to the Central Bank for that [payment] to be made,” he said. “It’s down to the regulators. We think we’ve got quite a lot of capital.

“We have too much and everybody agrees that we have too much so we want to start some of the process of freeing it up,” Mr Mallon said, adding that his “aspiration” was to make a payment to RBS this year.

At the end of 2015, Ulster Bank had a Core Equity Tier 1 ratio of 29.6 per cent, well in excess of regulatory requirements. This equated to about €7.7 billion.

Regular payments

He said Ulster Bank would then hope to make a regular dividend payment to RBS.

“I would like to think that, over the fullness of time, we’ll earn our cost of capital and pay a reasonable dividend,” he said.

“It’s not about achieving a target to repay a debt of the past. It’s a question of maximising the value of this business for the RBS shareholders going forward, whatever that will be.”

Mr Mallon took over as CEO of Ulster Bank in the Republic on June 1st , inheriting some legacy issues. This included some mortgage customers not having a tracker interest rate applied to their loans in recent years.

Last December the Central Bank ordered all Irish financial institutions to review their mortgage books for such cases.

Ulster Bank took a provision of €118 million in its half-year results to cover the costs of redress, although it has not quantified how many customers were impacted or how many lost their homes as a result of the bank’s failure.

Mr Mallon offered an apology about to customers affected by this. “The future of this bank has got to be built on customer trust and integrity and about doing the right thing. I’m definitely sorry to anyone who has been disadvantaged by this or perceives that they have been.”

Quicker decisions

He said the bank would begin communicating with affected customers in the coming months.

Mr Mallon said he would not seek to “reinvent Ulster Bank but there is scope to run the bank an awful lot better, pretty much in every dimension”.

“There’s an observation that we could be quicker in making decisions, that we could have less internal bureaucracy. We clearly haven’t leveraged the best of RBS and are more separate from RBS than I would have expected.”

On whether Ulster Bank might close some of its 110 branches in the Republic to reflect the move by many customers to digital banking, Mr Mallon said: “It’s very difficult to come up with a number but almost certainly it is less than today.

“Technology is changing the way that customers interact. The transactional stuff is gradually going to diminish. So branches will become more like a car dealership, where you go very infrequently.

“You go for something high-end and the place is top class in its physical manifestation of what the brand represents.”