Royal Bank of Scotland Group Plc has channelled the equivalent of almost a third of its 45.5 billion- pound ($69 billion) government rescue into bailing out its Irish division after real estate loans soured.
Ulster Bank received a 2.93 billion-pound capital injection from its parent last year, bringing the total since 2009 to 14.3 billion pounds, according to filings lodged by the Dublin-based lender at Ireland’s Companies Office in the past week. David Gaffney, a spokesman for RBS, confirmed the figures.
The lender, acquired by RBS in 2000, doubled its assets to 55 billion pounds in the four years before Ireland’s real estate bubble burst, according to a report published in 2011 by the U.K. Financial Services Authority. While Ulster Bank accounted for only 3 percent of RBS’s assets in 2007, it has generated almost 13 billion pounds of bad loan losses, filings show.
“The severe losses suffered by certain U.K. lenders in Ireland partly reflects the aggressive lending practices they employed here,” said Philip O’Sullivan, chief economist at Dublin-based NCB Stockbrokers. “Strategies that were heavily based on expanding market share have backfired, though improved appetite for Irish assets of late may offer an escape route for some of the remaining distressed loans in their portfolios.”
Ulster and Bank of Scotland Plc, part of HBOS Plc until that lender was rescued by Lloyds Banking Group Plc (LLOY) in 2008, competed “aggressively” with domestic competitors, offering new and riskier mortgages, according to a 2011 report on the country’s banking crisis commissioned by the government.
Bank of Scotland, now part of Lloyds, introduced Ireland’s first mortgage where rates tracked the European Central Bank benchmark rate in 1999. Ulster Bank’s First Active unit offered the first loan for 100 percent of the value of a home in 2005.
Irish home prices have dropped 51 percent from their 2007 peak. The country’s unemployment rate stood at 14 percent in March, down from 15 percent a year earlier, the Central Statistics Office said yesterday.
Lloyds pumped 8 billion euros ($10.2 billion) of capital into its Irish unit between late 2008 and 2010, when it let its local banking license lapse and subsumed the loans into the London-based parent. Ireland has committed a gross 64 billion euros to its six largest domestic lenders in the same period.
“There were some emerging signs of improvement in the Republic of Ireland economy during the fourth quarter, most notably in the availability of institutional funding, some stabilization of residential property prices and continued economic growth, albeit modest,” RBS said on Feb. 28 as it reported an annual net loss of almost 6 billion pounds.
Ulster Bank’s net loss narrowed to 2.2 billion pounds from 2.8 billion pounds in 2011, as loan impairment losses fell 37 percent to 2.34 billion pounds. The capital injection from its parent last year was the smallest since 2009, the bank said.
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