Ulster Bank losses narrow as impairment charges fall

Losses at Ulster Bank fell in the first half of the year and pre-impairment operating profit rose as parent company Royal Bank of Scotland noted "encouraging" signs in credit trends.

Impairments at the bank fell to £503 million (€591 million) in the first six months of 2013, down from £717 million in the same period a year earlier.

Operating losses eased to £329 million from £555 million in 2012. Removing impairments from the figures saw Ulster Bank record an operating profit of £174 million.

The Irish division recorded a net interest margin of 1.85 per cent, remaining steady despite a fall in net interest income of £17 million as the costs of deposit raising remained high.

The bank noted that the number of customers in 90 days or more mortgage arrears declined inthe second quarter compared to the first three months of the year, the first quarter-on-quarter fall since June 2008.

“However, we continue to see large numbers of customers who are not engaging with us,” chief executive Jim Brown said. “Our core objective remains to keep as many cooperating customers in their homes as possible and we encourage customers in financial difficulty to engage with us to find the right solution. We expect to see an increase in legal activity where the customer still does not engage.”

Meanwhile, RBS confirmed Ross McEwan as its new chief today, tasked with recovering British taxpayers’ cash from one of the biggest casualties of the credit crunch.

Mr McEwan (56) whose promotion comes less than a year after he arrived to run RBS’s retail arm, will take over in October.

He had been widely tipped to get the job after predecessor Stephen Hester was ousted by the government in June and will have the job of completing RBS's restructuring, ensuring its shares rise above the government's break-even price so the stake can be sold.

Finance minister George Osborne welcomed the appointment and said Mr McEwan had impressed with his vision of RBS “as a strong, UK-centred corporate bank”, focused on supporting the British economy.

“I think he’ll provide the leadership RBS needs as the bank puts the mistakes of the past behind it, and the government seeks to get the best value for the taxpayer from the money the last government put into the bank,” Mr Osborne said.

Mr McEwan was appointed as RBS said it made a pretax profit of £1.4 billion in the six months to the end of June, compared with a loss of £1.7 billion in the first half of 2012.

The bank made its first two consecutive quarters of profit since 2008, when it needed a £46 billion bailout from the taxpayer which left the government with an 81 per cent stake. RBS said it expects its restructuring to be largely done by the end of 2014.

Mr McEwan joined RBS as CEO for UK retail in September from Commonwealth Bank of Australia and is considered a safe, politically acceptable choice who will increase the bank’s focus on retail and commercial banking.

He is expected to continue slimming down its investment bank, as wanted by many politicians and regulators.

“It’s really important for the UK economy to have this bank back up and running,” Mr McEwan said. “It’s a major responsibility for me to guide this organistion to focus very strongly back on our customers and I’m looking forward to that opportunity.”

He will be paid an annual salary of £1 million , less than the £1.2 million Mr Hester received. Mr McEwan said he did not want to be considered for an annual bonus for the remainder of 2013 or for 2014.

“We take the swift replacement as a signal of the government’s urgency to take RBS closer to the end game when the Treasury can exit its holding profitably,” said Chirantan Barua, analyst at brokerage Bernstein.

RBS shares are still well below the price the government paid for them and which are valued at 407 pence on its books. A sale of its shares are seen as at least a year away, unlike Lloyds Banking Group, where the government is set to start selling its shares soon.

RBS said its capital strength continues to improve and expects to reach a core capital ratio under full Basel rules of more than 9 per cent by the end of this year.

It took an extra £185 million provision to compensate customers for the mis-selling of payment protection insurance, taking its total bill to £2.4 billion.

Additional reporting: Reuters