Ulster Bank aim to be back in black this year, says chief executive
Ulster Bank will make a profit in 2014 despite racking up losses of nearly £1.5bn last year, according to chief executive Jim Brown.
The bank, owned by part-privatised RBS Group, saw its losses stretch from £1bn in 2012 because if what it describes as a one-off cost of £911m to set up its own "bad bank" RBS Capital Resolution (RCR) to handle toxic loans.
But Mr Brown said he was confident the bank would be back in the black this year.
"We're definitely going to be in profit in 2014," he told the Belfast Telegraph. "Business momentum is very strong in Northern Ireland at the moment."
While this financial year may be looking more positive for Mr Brown, the 2013 results proved another bitter pill to swallow for the biggest bank on the island of Ireland, particularly given main rival in Northern Ireland Danske reported a profit for same period.
A direct comparison between the two is normally difficult because Ulster Bank reports results for the island of Ireland and Danske only for Northern Ireland.
But Mr Brown told The Belfast Telegraph that the Northern Ireland arm of Ulster Bank was still in the red in 2013 as a result of "commercial real estate" losses and the cost of setting up bad bank RCR.
The latter has been tasked with "managing down an identified pool of assets so as to release capital", a process it will carry out over the next three years.
Asked whether there is a chance liquidating property and land assets in such a short space of time could further damage an already fragile market, Mr Brown said that wouldn't be the case.
"We want to do this in an orderly way," he said. "It's not in our interests, of ourselves or the market, to sell everything at once."
While the bank's bottom line has been hit hard by the set-up costs of RCR, it will be hoping that without the burden of badly performing loans the rest of its business can put in a better performance.
For 2013, profit before the impairment charges were taken into account fell slightly to £317m from £324m but there were signs of improvement.
Mortgage impairments fell by two thirds to £235m, income increase and the loan-to-deposit ratio also improved.
"2013 sees a 64% year-on-year reduction in mortgage impairments," Mr Brown said in a statement. "Our Arrears Support Unit has worked diligently with our customers and as a result, the arrears balance has reduced by almost €900m demonstrating the effectiveness of our approach to helping customers in difficulty."
What will RCR, Ulster Bank's bad bank, do?
According to the bank, RBS Capital Resolution will be responsible for "managing down an identified pool of assets so as to release capital".
That means taking on board loans from across the island of Ireland worth £911m, most of which are against property or development land which the bank doesn't expect to be repaid in full. Over the next three years RCR will try and get as much as it can for the assets.
What they said after the results
Ross McEwan, chief executive of RBS
Our bank in Northern Ireland will benefit from a closer integration with our personal and business franchises in the rest of the United Kingdom.
There are meaningful synergies in terms of investment, costs and customer experience from doing this. It is essential if we are to provide a more appealing and compelling service to our customers in Northern Ireland under the Ulster Bank brand.
Finance Minister Simon Hamilton
I welcome the fact that the Ulster Bank brand is to remain and the Northern Ireland operation is to have a closer alignment with RBS operations in the rest of the UK as part of its Personal and Business Bank Division.
This ensures customers here will have full access to all of the RBS Group's services and for business and personal customers this is very good news.
It is clear too however, that the coming months will be a time of restructuring and considerable change at the RBS group, including local Ulster Bank operations, will be smaller at the end of that.
Ciaran Callaghan, an analyst at Merrion Stockbrokers
RBS appears to be focused on de-risking its business model, targeting a less capital intensive low cost retail & corporate franchise going forward (akin to the Lloyd's model with some residual markets business).
This restructuring should enable the bank to generate returns above a lower, less risky, cost of equity in the future. Though the transformation is not without execution risk especially given the tough regulatory pressures of the PRA.
While it continues to recover, we would not be surprised to see the bank seek to merge with other small players.
Still committed to whole of Ireland... but review may change operations
Ulster Bank said it is committed to its business on the island of Ireland, but a group-wide review could see the way it processes that business, changed.
Ross McEwan, chief executive of parent company RBS, said Ulster Bank is "an important business for the whole island of Ireland and we understand the need to get this right" at the release of the lender's annual results.
However, an ongoing review of RBS will see Ulster Bank's Northern Ireland arm share some back-office functions with its parent, according to Ulster Bank chief executive, Jim Brown.
"While Ulster Bank will continue to operate across the island of Ireland, in Northern Ireland, a closer alignment of our infrastructure with the bank in Britain will bring more efficient service and product improvements to our customers," he said.
That means the integration of IT systems between the two, as well as amalgamating other services which both banks currently offer, but from two separate locations.
Mr Brown said it was too early to tell how the streamlining of the two businesses would impact workers at Ulster Bank in Northern Ireland, but said change was necessary.
"The shape of our organisation will change as we manage our legacy issues such as mortgage/SME arrears and RCR assets, and as we form a closer alignment to RBS," he said.
Because it operates in a different currency, Mr Brown said the integration won't be as severe between RBS and Ulster Bank in Dublin.
Meanwhile, Mr Brown reiterated that Ulster Bank's branch network in Northern Ireland – the most extensive of all banks here – will reduce over time.
This, he said, would be "driven primarily by changes in customers' behaviour".
But the lender said it still expected to maintain the biggest branch presence on the island of Ireland.
"Customer behaviour is rapidly changing and we must adapt to their needs with a full-service bank serving customers through an evolving mix of traditional branches, new points of presence and an enhanced direct and digital offering," he said.