Ireland Wargames NatWest’s Exit from Ulster Bank

Irish officials are wargaming how to handle the closing of NatWest Group Plc’s Ulster Bank unit, amid a growing belief that will be the outcome of the U.K lender’s review of its future, according to a person with knowledge of the matter.

Irish Finance Minister Paschal Donohoe spoke to NatWest Chairman Howard Davies by phone on Thursday, once again emphasizing the value of Ulster Bank to the nation’s economy. Ulster has about 2,300 staff in the Republic of Ireland and a loan book of about 21 billion euros ($25.8 billion).

Officials are examining possibilities such as how Ulster’s performing loan book might be sold and divided up among the domestic banks, according to the person, who asked not to be identified as the deliberations are confidential.

NatWest said in September it’s considering “strategic options” for the unit. Ulster has mostly struggled after helping fund the Irish real-estate bubble more than a decade ago, which resulted in a rescue from the former Royal Bank of Scotland, itself nationalized by the British state. No decision has been made, and previous reviews of Ulster’s future have ended without any change.

That might be the outcome again, with Irish central bank deputy governor Ed Sibley cautioning this week that it’s “not a total given” that Ulster will leave the Irish market. However, at this point, an exit is considered the most likely outcome by some government staff.

Loan Sales

While officials are considering the effects of NatWest seeking to sell the entire business at once, they see it as more likely the unit would be wound down over several years, giving depositors time to move their money and increasing the likelihood loans would be sold in chunks.

In that situation, buying loans could be partly funded by the banks issuing new debt, the person said.

The Irish state remains a key player in the Irish banking sector following its bailout during the financial crisis. The taxpayer has a majority stake in AIB Group Plc and Permanent TSB Group Holdings Plc, and retains a 14% stake in Bank of Ireland Group Plc. While the government has an arms-length relationship with the banks, executives in the domestic banking sector have been encouraged to examine the implications of Ulster’s potential departure.

It’s considered less likely that the domestic Irish banks would buy Ulster’s non-performing loans. Since the financial crisis, firms such as Cerberus Capital Management LP have actively targeted sales of bad loans in Ireland.

The Department of Finance continues to monitor the situation as the review process continues, a spokesperson said.

©2020 Bloomberg L.P.

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