RBS Pumps Extra $1.2 Billion Into Ulster Bank on Mortgage Losses

Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, has injected as much 770 million pounds ($1.24 billion) into its Ulster Bank unit to absorb losses from the collapse of Ireland’s real estate bubble.

The capital support is in addition to 10 billion pounds pumped into the operation since 2008, RBS Finance Director Bruce van Saun told reporters on a conference call today. Impairment losses at the unit increased 20 percent to 394 million pounds in the first three months of 2012 compared with the previous quarter, Edinburgh-based RBS said in a statement.

“Impairments came in much higher than expected and that’s after they had guided that they should be trending down,” said Shailesh Raikundlia, a banks analyst at Espirito Santo Investment Bank in London. “That is where the issues remain for RBS.”

Ulster Bank’s assets doubled to 55 billion pounds in the four years through the 2007 Irish real estate market peak and the company took a 7.5 percent impairment charge against total loans between 2008 and 2010, according to a report published in December by the U.K.’s Financial Services Authority. The losses on souring mortgage loans in the first quarter of this year are worse than the company forecast on Feb. 23, when Chief Executive Officer Stephen Hester said they had stabilized.

“Ulster Bank still faces exceedingly difficult market conditions,” RBS said today. Losses increased “largely due to rising arrears rates on the residential mortgage portfolio and the continued deterioration in asset quality as property prices declined.”

Financial Difficulty

Some 1.9 billion pounds, or 9.4 percent of Dublin-based Ulster Bank’s mortgages had so-called forbearance arrangements at the end of March, up from 9.1 percent from the end of December. Such accords for customers in temporary financial difficulty include loan-payment moratoriums, reduced repayments or adding arrears to principal.

“Ulster Bank is a disaster for RBS,” said Bruce Packard, an analyst at Seymour Pierce Ltd. in London. “It goes to show that it wasn’t just the investment banks that failed, it was the international businesses as well.”

Irish house prices have dropped about 50 percent from their 2007 peak, the Central Statistics Office said March 26. Commercial real estate values have plunged by two-thirds, according to Investment Property Databank. Unemployment in the country stood at 14.3 percent in April, according to the statistics office.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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