Natwest considering closing Ulster Bank in the ROI

kalych wrote: »

Cost of funds is only part of the total costs. There's also cost of risk(including credit, basis point and liquidity, ), cost of operations, regulatory levies and reg. capital requirements, plus banking license costs to name just a few. I love how people pluck a figure out of the financial report and run with their version of the story.

If UL are making so much money, why have they decided to withdraw so?

that may be true, but to break a fixed rate it is only the cost of funds that is factored in to the break fee

Timing belt wrote: »

If it is a fixed rate mortgage there should be no basis risk unless the bank decided to run a unmatched book and if it does then the risk should be covered by its interest rate risk policy.

Any liquidity cost should be accounted for and allocated appropriately at a product level along with the operating costs of the business and the credit risk premium when setting the Margin for the loan.

The reason Ulster bank are not making money is mainly down to the capital it needs to hold because of the risks they took back in 07/08 and because they don't have the volume to remain profitable for their operating model. The alterative would be to invest in the operating model to make it more low cost and streamlined but Natwest obviously thought that this was not worth the investment and the funds could be used better elsewhere in the Bank.

All valid points...in theory. Have little to do with reality. The reason UL is not making money is not Capital costs. Capital allocation is merely ineffective, as they'd rather deploy that capital in the UK where they can get a better return. They're not 'losing' money per se by holding capital, just missing out on making more money.

The reason UL are losing money is tracker mortgages and the cost of remaining competitive (it costs and lower rates) which (trackers) leads to my initial point about basis risk. Banks don't really price basis risk at facility level, so if you've basis risk in trackers due to inability to adjust their pricing in line with real costs, you've basis risk on the entire book. You try to mitigate it with new lending, but will not eliminate it until trackers are off the book fully.

I don't really understand your point on product level allocation of risk? What if you mispriced it previously? Does it just disappear or do you think banks try to recover it's costs by other means for the backbook?

kalych wrote: »

All valid points...in theory. Have little to do with reality. The reason UL is not making money is not Capital costs. Capital allocation is merely ineffective, as they'd rather deploy that capital in the UK where they can get a better return. They're not 'losing' money per se by holding capital, just missing out on making more money.

It costs the bank money to hold Capital so yes they are losing out on money. It is not just about missing out on making more money. If the bank issue AT1 they will need to pay a coupon to attract investors, If they are holding retained earnings then they need to hold cash/bonds at a negative rate so they are loosing money.

The reason UL are losing money is tracker mortgages and the cost of remaining competitive (it costs and lower rates) which (trackers) leads to my initial point about basis risk. Banks don't really price basis risk at facility level, so if you've basis risk in trackers due to inability to adjust their pricing in line with real costs, you've basis risk on the entire book. You try to mitigate it with new lending, but will not eliminate it until trackers are off the book fully.

The trackers will lower the NIM but are not the reason for losses. The costs of operating are to high and they are unable to cut these costs without significant investment and are very unlikely to return any profit in the low interest rate environment. They are not the only bank in Europe with this issue.

I don't really understand your point on product level allocation of risk? What if you mispriced it previously? Does it just disappear or do you think banks try to recover it's costs by other means for the backbook?

My point is that bank will price customer lending based on Risk. If they calculate the risk incorrectly then they may make losses. How bank decides to price this risk will be down to the risk models they have deployed and the level of risk the Board are willing to accept. Back in 07/08 Ulster took onboard a lot of risk and are still paying the price today by having to hold more capital.

silver2020 wrote: »

I think we're all wrong.

In their example it takes Jan 2014 & Jan 2015. there was only 0.1 difference in the published Cost of Funds, yet 1.13% difference in the figure they used.

This was a time when the new capital reserves regulations came in, which were lower than previously, (explaining the 1.13% difference that year) but still on average over twice eu average, so I suspect there is a different calculation of "mortgage cost of funds" in the inner workings of the banks.

I'm not sure what figure you're referring to - I.e where you're seeing 1.13%. In had a quick look back through the thread and didn't catch it. But the CRR is not your answer

The essential is that notionally the bank borrows money from the interbank market to lend to you. Say for 5 years. So the prevailing 5 year rate on that day is A. If after 2 years you want to break then the bank has to place your money back on the market - this time at the prevailing 3 year rate so that there is no maturity mismatch. The 3 year rate is B. The difference between the two is the basis of your break fee, unless B is higher than A. Yield curve shenanigans can mean that short term rates are higher if the market is pricing in particularly unusual activity, but typically the shorter term is cheaper - resulting in a fee being payable. A flat curve works for us consumers.


This has been the case since the mortgage credit directive came into force. That would override any contractual terms that predate the mcd.

The Sunday Times reports here (paywall):

- Transferring current accounts from UB to PTSB would be a "mess" given far from leading technology on both sides. It also might be highly costly with IT and project costs.
- A probable outcome now is that NatWest will simply sell the mortgage and deposit book, and give its current account customers notice of its intention to leave the market and basically tell them to find their own home.
- Sources say a deal on the mortgage and deposits could be done by the middle of summer, with the transfer proceeding over the ensuing 12 months, during which time customers will sort out their current accounts.

Looks like 500,000 Ulster Bank current account will need to find to a new bank themselves. Wow!

JTMan wrote: »

The Sunday Times reports here (paywall):

- Transferring current accounts from UB to PTSB would be a "mess" given far from leading technology on both sides. It also might be highly costly with IT and project costs.
- A probable outcome now is that NatWest will simply sell the mortgage and deposit book, and give its current account customers notice of its intention to leave the market and basically tell them to find their own home.
- Sources say a deal on the mortgage and deposits could be done by the middle of summer, with the transfer proceeding over the ensuing 12 months, during which time customers will sort out their current accounts.

Looks like 500,000 Ulster Bank current account will need to find to a new bank themselves. Wow!

Switching bank account very easy thing to do in fairness

The interesting thing about this is that UB current account customers might not be auto-migrated to PTSB. Open game for Revolut, N26, Monese, An Post, BoI, AIB and even PTSB to avail of this once-off opportunity to get some of the 500k people looking for a new home. That's if they want them.

Buddy Bubs wrote: »

Switching bank account very easy thing to do in fairness

Switching current account provider is not always easy. Firstly, your inbound amounts do not auto-transfer, you need to do this yourself with the third parties. Secondly, the transfer of SO's and DD's does not always go to plan. Thirdly, the bank you are switching too may not offer an 'auto' switch of DD's and SO's, not all do.

JTMan wrote: »

Looks like 500,000 Ulster Bank current account will need to find to a new bank themselves. Wow!

Anyone else think this is a positive.... I wasn't planning on hanging round PTSB for too long after my accounts are moved. One less account to close is fine by me.

Chris_5339762 wrote: »

Not to AIB it isn't. Four weeks and counting.


- Their Android app only works on very recent versions of Android. Ridiculous.
- One person looking after new accounts in Wexford. She was on holiday for two weeks. No-one covering.
- They don't accept a scanned version of the application form. Has to be the original.


I mean really. Dark ages stuff here.

The app only supports newer versions of Andriod as the security in the older versions is no longer good enough. Google no longer provides security updates for the old versions.

You can open an AIB account using the app, you have a video call with the account opening team and confirm your ID etc on a video call

Darc19 wrote: »

Android 8 has been out for over 4 years. If you have Android 7 or lower many apps won't work not just AIB.

I would suspect most people will have Android 8 or better.

So for the few that don't, they will have to go into a branch - or could upgrade their phones. (You can get a sim free android 8 smartphone for very small money)


I think some people almost go out of their way to get frustrated.

I really shouldn't have to upgrade my Samsung Galaxy S5 Neo to be able to bank. Let alone how I would explain all of that to my 75 year old mother. Its a perfectly good phone, its not my fault Samsung won't allow an update past Android 6.0.



I do agree phone apps are useful, but an alternate that is actually reasonably decent is required.

Jim2007 wrote: »

It’s not the banks fault either and expecting them to continue to allow outdated software to access their systems is a non starter.

And since everyone wants free banking, don’t expect them to invest in alternatives either.

I would actually take the opposite view that banking and other essential services should have options for legacy users and low bandwidth options. There are still many areas of the country that don't have access to high speed internet, or there are times when you are roaming on an expensive or slow data connection and need quick access to your finances

They could make a fairly simple HTML browser app which has all the same functionality and security but gets rid of the fancy graphics and interactive features to save on bandwidth. It wouldn't need much maintainence either since the technology is as old as the internet and widely supported

AlmightyCushion wrote: »

Whatever about supporting older versions of Android, the bandwidth thing shouldn't be an issue. All those fancy graphics are likely stored in the app itself and not downloaded every time. I just checked my KBC app and apparently it has only used 3.16MBs of data (that is across mobile and WiFi) since January 26th and only 90KBs this month so far. I imagine the other banks are similar. You don't need high speed internet for these apps either.

True enough, but it still leaves the requirement to download newer versions of the app

A simple HTML site works anywhere and requires minimal download data