ULSTER BANK, the third-largest bank in the Irish market, has placed £6 billion (€7 billion) worth of loss-making Irish tracker mortgages into a new division, and may write them off under the British government’s bad bank scheme.
Tracker mortgages are set at a fixed margin over the European Central Bank (ECB) rate and rise and fall automatically as the underlying rate changes. The ECB has slashed its rate to a record low of 1 per cent to stimulate the euro zone economy and Ulster Bank is losing money by passing on the reduction to tracker holders.
The mortgages were provided at the height of the boom by the bank’s sister lender, First Active, which was merged with Ulster Bank earlier this year. Ulster Bank and First Active were among the heaviest property lenders and were the first to offer 100 per cent and 40-year mortgages.
Overall, the lender, owned by UK bank Royal Bank of Scotland (RBS), is placing £15 billion of its £54 billion Irish loan book – including the loss-making trackers – into a separate division described as “non-core”. A large proportion of these loans will fall under the UK government’s risk insurance scheme to address toxic bank assets under which lenders can insure against losses on their loans.
Neither Bank of Ireland nor Allied Irish Banks have indicated at this stage they have problems with loss-making tracker mortgages. However, the Government has left the door open to include loans other than land and development loans in the National Asset Management Agency (Nama). Minister for Finance Brian Lenihan has said it is unlikely mortgages will have to be purchased by the agency.
Ulster Bank has also transferred £9 billion in loans due from Irish property developers and owing on landbanks to its new division. Among the assets moved to the unit are loans to developer Sean Dunne for his €379 million purchase of the Jurys and Berkeley Court hotel sites in Ballsbridge, Dublin, in 2005.
RBS said that it would seek to clarify whether any Ulster Bank assets were eligible for Nama. The bank is separating the good loans on its books from the higher-risk and potentially bad loans to concentrate on the better part of its business. The £15 billion in Irish loans in the “non-core” division will be sold off, restructured or written off, the bank said.
Ulster Bank announced plans to seek 250 more job cuts in addition to the 750 redundancies sought last January, following the merging of First Active with the bank. The job cuts were announced as the bank made a loss of about £500 million for the first half of the year after writing off £641 million on bad loans, primarily on property and development loans in the “non-core” part of the bank.
The Irish Bank Officials Association described the fresh round of redundancies at Ulster Bank as “profoundly disappointing”, particularly given as earlier 750 lay-offs have yet to be completed.
