RBS's Ulster Bank Returns to Profit as Bad Loans Decline

Royal Bank of Scotland Group Plc said its Irish unit, Ulster Bank, posted its first quarterly profit in five years as impaired loan losses fell 80 percent, helped by a transfer of risky assets to an internal bad bank.

Ulster Bank swung to a 17-million-pound ($28.7 million) operating profit in the first quarter from a 164-million-pound loss in the year-earlier period, its Edinburgh-based parent said in a statement today. Easing residential mortgage losses drove impairment charges down to 47 million pounds from 240 million pounds.

RBS CEO Ross McEwan told reporters on on a call today that the bank may “work with other parties” at Ulster and will update investors later this year. RBS canvassed investors’ interest in buying a stake in Ulster Bank, according to people with knowledge of the discussions who asked not to be identified because they weren’t authorized to speak publicly.

“We are focused on sustaining the recovery of our business,” Ulster Bank Chief Executive Officer Jim Brown said in a statement.

RBS, Britain’s biggest state-owned lender, reported a threefold gain in quarterly profit today, helped by lower impairments and Ulster Bank’s results.

‘Challenger Position’

Brown told lawmakers in Dublin on April 8 that RBS remains committed to Ireland, having pumped about 15 billion pounds into Ulster Bank during the financial crisis. The lender is “looking at a number of options” to build a “challenger position” to Bank of Ireland Plc and Allied Irish Banks Plc, he said, after shifting 9 billion pounds of assets into the bad bank.

RBS has said it plans to further integrate Ulster Bank’s Northern Irish operations with its U.K. business, while Brown told the Irish Times in March that RBS hired Morgan Stanley to advise on potential merger opportunities in the Republic of Ireland. The Sunday Times reported on April 27 that RBS plans to approach private-equity firms about investing in Ulster Bank.

“Creating a larger bank with new investors could dilute RBS’s stake to less than 50 percent, implying any future losses would not have to be consolidated on RBS’s accounts,” Eamonn Hughes, an analyst with Dublin-based Goodbody Stockbrokers, said on April 28. He also cited speculation that Ulster Bank may merge with Permanent TSB Group Holdings Plc.

Permanent TSB CEO Jeremy Masding said on March 26 the Dublin-based bank has had no contact with Ulster Bank on a potential accord. Permanent TSB spokesman Ray Gordon declined to comment.

“Merging is a challenge,” Patrick Honohan, the nation’s central bank governor, told reporters in Dublin on April 30, when asked about the possibility of Ulster Bank combining with Permanent TSB. “If they do it, we’d certainly be interested in helping make it work out.”

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