Natwest considering closing Ulster Bank in the ROI

Timing belt

Arthur Daley wrote: »

So if the Non Core and distressed debt has been sold, and the Go ahead Bank makes a loss in the year of Covid, and little return outside of that, but then as we know it's a low interest rate environment, then isn't closing down the Bank a bit of a rash decision.

A bank makes less money in a low interest rate environment as its margins are cut drastically. Plus they are charged by the ECB for any cash they leave with them overnight.

Arthur Daley wrote: »

I mean in the same markets Bank of Ireland reported profits of three quarters of a billion in 2019 and almost a billion in 2018

https://www.rte.ie/news/business/2020/0224/1117207-bank-of-ireland-results/

Ulster banks profit for 2018 was 85m and 2019 5m.

It had a CET ratio of 26.5% versus BOI's ratio of 13.8%. The main driver being that due to previous bad debt in ulster bank they were required to hold onto more capital that ulster bank making it less profitable.

It had a cost income ratio of 95% versus BOI's ratio of 65% that means for every 100m income ulster made 5m profit whereas BOI made 35m.

Timing belt

Daz_ wrote: »

Hi , if have a mortgage with U bank on the tracker rate will that be gone if they are sold or new owner obliged to keep the tracker ?

There would be no change to your existing mortgage. It would just be owned by someone else.

Arthur Daley

Timing belt wrote: »

A bank makes less money in a low interest rate environment as its margins are cut drastically. Plus they are charged by the ECB for any cash they leave with them overnight.




Ulster banks profit for 2018 was 85m and 2019 5m.

It had a CET ratio of 26.5% versus BOI's ratio of 13.8%. The main driver being that due to previous bad debt in ulster bank they were required to hold onto more capital that ulster bank making it less profitable.

It had a cost income ratio of 95% versus BOI's ratio of 65% that means for every 100m income ulster made 5m profit whereas BOI made 35m.

But it's the same for all banks, low interest rate environment, less can be charged on Mortgages. BOI and AIB did ok with it.

So what the above suggests is that it isn't an issue with the Irish market, as BOI and AIB can do alright. The economy is experiencing growth, despite all the issues that certain sectors have and high unemployment.

BOI and AIB are not going around routinely offering people 50p in the pound or they wouldn't be making such strong profits. So Natwest or UK Treasury shouldn't be throwing in the towel just like that, in the exact same market, they should fight for their largest shareholder.

Timing belt

Arthur Daley wrote: »

But it's the same for all banks, low interest rate environment, less can be charged on Mortgages. BOI and AIB did ok with it.

So what the above suggests is that it isn't an issue with the Irish market, as BOI and AIB can do alright. The economy is experiencing growth, despite all the issues that certain sectors have and high unemployment.

BOI and AIB are not going around offering people 50p in the pound or they wouldn't be making such strong profits. So Natwest or UK Treasury shouldn't be throwing in the towel just like that, in the exact same market, they should fight for their largest shareholder.

The shareholders would be significantly better off if Natwest sold Ulster and used the capital elsewhere to grow a more profitable part of the company. Even if they didn't do this and used this to pay a dividend to shareholders they would be better off and that is not even taking into account that the share price would rise of the back of it.

I am struggling to see the point that you are trying to make.

To put it a different way what do you think Ulster bank should do differently to make them as profitable as BOI or AIB that has not already been tried in the previous 12 years.

Arthur Daley

Well, obviously they would need to look at their cost base when it is so high compared to the other Banks. But that lies within, rather than blaming the Irish economy and thinking it's going to be much better over the other side of the fence.

Any culture of 'doing deals' needs to stop, pre Covid 19 the unemployment rate was 5%, Incomes have been rising every year, and the economy keeps growing. Genuine hardship cases should be looked at to see what can be done, but in the backdrop of an extremely healthy economy the number of homeowners or business needing 'a deal' should be at a very low level.

Maybe the branch network will need to be looked at, but I'd certainly be resistant to moves that did away with cash as a payment option, or shafted the high street anymore than it already is. The Government and Central Bank say they want to see branches remain, and competition in the market so they should have policies that facilitate that.

And maybe they will have to be content with making a boring return on the investment and getting back to making small profits once Covid 19 passes through the system. As we have said there is a low interest rate environment, the issues in the Irish economy are not that dissimilar to any part of the UK, so when they say they'll invest elsewhere what other options are there to generate massive returns when the funding costs are so low.

It just seems to be throwing the baby out with the bathwater to close down, and signalling a free for all where people can continuously plead the poor mouth and get deals at the taxpayers expense.

Timing belt

Arthur Daley wrote: »

Well, obviously they would need to look at their cost base when it is so high compared to the other Banks. But that lies within, rather than blaming the Irish economy and thinking it's going to be much better over the other side of the fence.

The fact is that Costs have been a focus for 12 years and if they haven't be able to reduce them up till now it would suggest that without a major investment they won't be able to in the future.

I Don't think anyone is blaming the Irish economy the simple fact is that business is not making a return on investment.

Arthur Daley wrote: »

And maybe they will have to be content with making a boring return on the investment and getting back to making small profits once Covid 19 passes through the system. As we have said there is a low interest rate environment, the issues in the Irish economy are not that dissimilar to any part of the UK, so when they say they'll invest elsewhere what other options are there to generate massive returns when the funding costs are so low.

The cost income ratio for the Natwest Retail business is about 60% versus Ulster's 95% so if they invested in the Retail business they would get a return on equity of about 20% versus less that 1% in ulster.

Arthur Daley wrote: »

It just seems to be throwing the baby out with the bathwater to close down, and signalling a free for all where people can continuously plead the poor mouth and get deals at the taxpayers expense.

If you think the business is worth keeping then would you be in favour of the Irish Government taking over ownership and investing 30billion its book price (or even 15billion if it purchased at 50% discount) considering that it is unlikely to make a profit for the foreseeable future.

Arthur Daley

Timing belt wrote: »

If you think the business is worth keeping then would you be in favour of the Irish Government taking over ownership and investing 30billion its book price (or even 15billion if it purchased at 50% discount) considering that it is unlikely to make a profit for the foreseeable future.

No, the Government should not have more ownership of banks. We've had enough of that already and need to draw a line under it. I don't know how much new business Ulster does in Ireland, it may be that Natwest is already diverting more funds away from it, it should be wound down in an orderly manner if it still has such high costs in 5 years time and these cannot or will not be addressed. Making maximum return for the taxpayer.

But I'd be against a fire sale with various vultures hovering to make a killing at the taxpayer's expense.

Timing belt

Arthur Daley wrote: »

No, the Government should not have more ownership of banks. We've had enough of that already and need to draw a line under it. I don't know how much new business Ulster does in Ireland, it may be that Natwest is already diverting more funds away from it, it should be wound down in an orderly manner if it still has such high costs in 5 years time and these cannot or will not be addressed. Making maximum return for the taxpayer.

But I'd be against a fire sale with various vultures hovering to make a killing at the taxpayer's expense.

It would take 35 years to wind down if you were not to sell on loan books so what you propose is not feasible and would cost the shareholders more.

Arthur Daley

Timing belt wrote: »

It would take 35 years to wind down if you were not to sell on loan books so what you propose is not feasible and would cost the shareholders more.

How much of the loan book will be 25 years +? Not that much, again we'll have to agree to disagree but I still fail to see how firesales help the shareholder, they should not be negotiating from a position of weakness, the funding is cheap (they print it after all) and they should signal to the market that they'll entertain a substantial offer when they're fine and ready.

Timing belt

Arthur Daley wrote: »

How much of the loan book will be 25 years +? Not that much, again we'll have to agree to disagree but I still fail to see how firesales help the shareholder, they should not be negotiating from a position of weakness, the funding is cheap (they print it after all) and they should signal to the market that they'll entertain a substantial offer when they're fine and ready.

It’s not a fire sale they will be selling at current market prices. E.g. value of the loan book less a margin for risk.

They don’t have to sell. That is the strategic review do they pump in a few billion or sell

Arthur Daley

Timing belt wrote: »

It’s not a fire sale they will be selling at current market prices. E.g. value of the loan book less a margin for risk.

They don’t have to sell. That is the strategic review do they pump in a few billion or sell

Well that seems like news to me why would they need to pump in a few billion at this stage, they have too much capital as it is, and if anything branches would be closing not new ones opening up.

jimmycrackcorm

Timing belt wrote: »

It would take 35 years to wind down if you were not to sell on loan books so what you propose is not feasible and would cost the shareholders more.

They can simply offload the management of the loan book. Just like Danske did with Pepper. Pepper did buy it out but prior to that, the mortgages were still Danske. I should know - mine was one.

Costs are dramatically reduced as Danske didn't need any offices or staff here and the only financial impact was in bad loans which still has to be definitely taken into account if you sell the loan book.

Timing belt

Arthur Daley wrote: »

Well that seems like news to me why would they need to pump in a few billion at this stage, they have too much capital as it is, and if anything branches would be closing not new ones opening up.

To invest in making the bank cost efficient. It wouldn’t be an investment in branches more than likely IT to automate process and reduce staff no’s

Timing belt

jimmycrackcorm wrote: »

They can simply offload the management of the loan book. Just like Danske did with Pepper. Pepper did buy it out but prior to that, the mortgages were still Danske. I should know - mine was one.

Costs are dramatically reduced as Danske didn't need any offices or staff here and the only financial impact was in bad loans which still has to be definitely taken into account if you sell the loan book.

Yes the could do that but would still have to hold capital for regulatory purposes which makes it less attractive as an option as they will want the capital to invest elsewhere which will get released if the sell the loan book.

Jim2007

Arthur Daley wrote: »

In order to free up capital trapped, they would sell their Books off at a big discount? Not sure how that works

When you're loosing money, you cut your losses, it's as simple as that.

kalych

Banks right now need to invest heavily into technology in order to stay competitive. Ulster Bank are one of the worst institutions from IT security perspective and probably only second worst to BOI to digital services available to customers, but with a much smaller footprint.

Their cost to income ratio is already 95% and Natwest are faced with a dilemma: do they invest even more capital to revamp Ulster Bank technology base and face negative return on equity for 3-5 years. Or cut their losses and exit the market allowing them to free up capital to be deployed in their home market where it looks like demand for credit might increase due to Brexit uncertainty.

Negative return on investment means you're not only not making money but actively losing money and future earning is still at risk due to competition since IT projects fail all the time. Withdrawing from the market means losing money in the short term, but then redeploying it in the home market where Natwest is very competitive resulting in much lower risk.

Plus the haircut on the sale of their portfolio will be nothing like 50%. Danske portfolio sold at ~16% discount to book value (note not nominal value, but after provisions for losses). Other portfolio sales were in the region of 15-22% haircuts. Make no mistake about it, this whole time Natwest were entertaining offers looking for the highest bidder for their portfolio and if the math checks out and they get the figure they have in mind - they will sell up.

Apologies for the long post.

Timing belt

kalych wrote: »

Banks right now need to invest heavily into technology in order to stay competitive. Ulster Bank are one of the worst institutions from IT security perspective and probably only second worst to BOI to digital services available to customers, but with a much smaller footprint.

Their cost to income ratio is already 95% and Natwest are faced with a dilemma: do they invest even more capital to revamp Ulster Bank technology base and face negative return on equity for 3-5 years. Or cut their losses and exit the market allowing them to free up capital to be deployed in their home market where it looks like demand for credit might increase due to Brexit uncertainty.

Negative return on investment means you're not only not making money but actively losing money and future earning is still at risk due to competition since IT projects fail all the time. Withdrawing from the market means losing money in the short term, but then redeploying it in the home market where Natwest is very competitive resulting in much lower risk.

Plus the haircut on the sale of their portfolio will be nothing like 50%. Danske portfolio sold at ~16% discount to book value (note not nominal value, but after provisions for losses). Other portfolio sales were in the region of 15-22% haircuts. Make no mistake about it, this whole time Natwest were entertaining offers looking for the highest bidder for their portfolio and if the math checks out and they get the figure they have in mind - they will sell up.

Apologies for the long post.

You are 100% correct on technology front but I don't see the Natwest investing in new systems anytime soon as they would rather use the capital on paying regular dividends rather than use it to invest in IT.

The whole banking sector will have this difficult decision to make over the coming years as it will be difficult to build new capital from retained earnings in such a low interest rate environment. And without paying regular dividends it will be very difficult to raise capital for an investment by issuing new Equity. You will probably see smaller banks being able to adapt quicker to the changing environment and update IT and in turn grow market share.

In relation to the hair cut on the loan book it is hard to say what it would be in the event of a sale as it is a mix of a retail and commercial book and we don't fully know what impact covid has had on its value.

garrettod

Timing belt wrote: »

The fact is that Costs have been a focus for 12 years and if they haven't be able to reduce them up till now it would suggest that without a major investment they won't be able to in the future....

The cost income ratio for the Natwest Retail business is about 60% versus Ulster's 95% so if they invested in the Retail business they would get a return on equity of about 20% versus less that 1% in ulster... .

Perhaps, people need to look a little closer at why the Cost To Income Ratio hasn't improved?

As a subsidiary of NatWest (formerly known as RBS), Ulster Bank has no ability to negotiate the annual charge that NatWest charges Ulster Bank, for provision of certain services. So, if the good people in the parent company wanted to transfer costs, to make their Cost to Income Ratio look a better, then they could charge UB a higher fee, without challenge, couldn't they?


Another factor to consider is what's good for the consumer. Is more competition good for the consumer, to provide both choice, and downward pressure on lending rates and bank charges? I would say yes, more competition is good for the consumer - and yet, Ulster Bank (just like other Banks such as Danske, ACC, BoSI etc. in times past) have not seen significant custom come to them, to help them grow. Instead, roughly 80% of personal customers continue to bank with either AIB or BoI.

I'm not saying that the above are the only issues for Ulster Bank, but they are certainly two very important ones.

Other issues include their significant tracker mortgage book, the current negative interest rate environment, the surplus cash on the UB Balance Sheet etc.

Even now, with speculation about the future of Ulster Bank, they are offering some of the best fixed homeloan rates on the market - where people could possibly save a fortune, if they are on a higher standard variable rate.

Timing belt

garrettod wrote: »

Perhaps, people need to look a little closer at why the Cost To Income Ratio hasn't improved?

As a subsidiary of NatWest (formerly known as RBS), Ulster Bank has no ability to negotiate the annual charge that NatWest charges Ulster Bank, for provision of certain services. So, if the good people in the parent company wanted to transfer costs, to make their Cost to Income Ratio look a better, then they could charge UB a higher fee, without challenge, couldn't they?

No Ulster have the ability to question the cost of a service and challenge it and it should be backed up by a cost driver such as no of payments etc to allocate any central cost. To simply suggest they accept whatever they are charged is suggesting that the management and board of directors of Ulster are not acting with due care. The Transfer costs may be high but that is probably down to outdated systems and inefficient processes rather than the one division of the bank trying to pull a fast one over another division and at the end of the day it makes no difference to the Natwest Group as they still report the same profit/loss.

UPDATE: I just had a look at the Q3 IMS for Natwest to see how indirect costs were allocated and ulster is charged the same % of indirect costs over income as the Retail bank which does not back up your claim.

garrettod wrote: »

Another factor to consider is what's good for the consumer. Is more competition good for the consumer, to provide both choice, and downward pressure on lending rates and bank charges? I would say yes, more competition is good for the consumer - and yet, Ulster Bank (just like other Banks such as Danske, ACC, BoSI etc. in times past) have not seen significant custom come to them, to help them grow. Instead, roughly 80% of personal customers continue to bank with either AIB or BoI.

Yes the more banks the more competition which drives a better service for the customer. But Ulster is owned by a UK Bank so I don't think they really care about this and Irish consumers are very slow to shop around when it comes to banks or mortgages.

Its the staff I feel sorry for as over 2,000 people would loose there jobs in the event of ulster exiting the Irish market and it's not like other banks are hiring with AIB and BOI cutting staff numbers.

Credit Checker Moose

When is this closure due to happen?

How long would UB customers have to make other arrangements?

Q&A

Credit Checker Moose wrote: »

When is this closure due to happen?

All we do know is there is a review currently underway - that's all.

Nothing is confirmed on the outcome. Everything here is speculation.

Credit Checker Moose wrote: »

How long would UB customers have to make other arrangements?

How long a piece of string..

Some context:

If you're a worrier you'd have been on edge for the past 12 years. This is not the first strategic review Ulster Bank had been through since the financial crises. Cuttings be the third or fourth at this stage. Every chance it won't be the last.


On the specifics of your question..... Your personal length of string will depend on what type of customer you are.

If you've a loan you'll probably won't have to do anything. They will keep, transfer or sell your loan. Your T&C's will be respected as will your consumer rights. Headed paper might change. Contact numbers, addresses might also.

Current account and savers will have a shorter piece of string.

New/potential customers no string if a decision to withdraw is agreed.

Thing to remember is any withdrawal will be orderly. Anything else would damage the reputation of its owner which is bad for its overall business.

They will want to extract the most money from what is still technically a marginally profitable business. Breaking it up and selling it piece by piece is one way but trying to sell it all as a going concern is likely the best option for all. I.e., string length here would be the same as if that's never had a review.

lawred2

just switched mortgage to UB

shakedown

Im looking to switch mortgages and UB is coming up in the list of contenders. Should I still consider it a viable option or is this potential closure a risk?

Timing belt

shakedown wrote: »

Im looking to switch mortgages and UB is coming up in the list of contenders. Should I still consider it a viable option or is this potential closure a risk?

It’s still a viable option

garrettod

Timing belt wrote: »

... .

UPDATE: I just had a look at the Q3 IMS for Natwest to see how indirect costs were allocated and ulster is charged the same % of indirect costs over income as the Retail bank which does not back up your claim.



.

I appreciate the point, but can I suggest that you look at a longer time frame, not just a 3 month window?

Also, if you happen to know any of the staff at the Bank, ask them if they get the same range of supports and services as their counterparts across the banking Group, I'm hearing that they get significantly less and particularly, when it comes to things like tech.

garrettod

shakedown wrote: »

Im looking to switch mortgages and UB is coming up in the list of contenders. Should I still consider it a viable option or is this potential closure a risk?

Sure, why not?

I assume that you are looking at one of the more attractive fixed rates - if so, even if the Bank sold your loan the day after you switched (very unrealistic, but anyway...), the new counterparty to the loan, will have to honour the contractual terms, so there's no impact on you.

Timing belt

garrettod wrote: »

I appreciate the point, but can I suggest that you look at a longer time frame, not just a 3 month window?

Also, if you happen to know any of the staff at the Bank, ask them if they get the same range of supports and services as their counterparts across the banking Group, I'm hearing that they get significantly less and particularly, when it comes to things like tech.

Those figures are for 9 months!!

Also for full year 2019 the indirects for ulster was 31% v uk retail 30%.

It’s staff costs that jump out as being high.....Ulster 35% v retail 13% for uk retail for full year 2019

Don’t know anyone working there or what level of service is received but yet again there should be SLA’s in place to manage this.

All I am claiming is that from the published results for 9 months of 2020 and 12 months of 2019 it doesn’t appear to be the case and the high cost is down to staff costs probably because the business is not benefiting from economies of scale

kalych

Timing belt wrote: »

Those figures are for 9 months!!

Also for full year 2019 the indirects for ulster was 31% v uk retail 30%.

It’s staff costs that jump out as being high.....Ulster 35% v retail 13% for uk retail for full year 2019

Don’t know anyone working there or what level of service is received but yet again there should be SLA’s in place to manage this.

All I am claiming is that from the published results for 9 months of 2020 and 12 months of 2019 it doesn’t appear to be the case and the high cost is down to staff costs probably because the business is not benefiting from economies of scale

Staff costs have a direct correlation with the size of the market. Banking requires a certain number of Distribution, Operations, Finance, Risk, Third Line and IT staff. And these costs are then spread over the size of the market. Ireland with 5 million people means that these staff are not spread over too many customers, resulting in high staff costs.

Arthur Daley

Do these costs include provisions and debt write offs by any chance. Are we comparing like with like.
Ireland is a wild west for people looking for loans written off, where you'd be shown the door in England if you tried this on.

Timing belt

Arthur Daley wrote: »

Do these costs include provisions and debt write offs by any chance. Are we comparing like with like.
Ireland is a wild west for people looking for loans written off, where you'd be shown the door in England if you tried this on.

No it is only staff costs, provisions and debt write off’s are reported separately