NatWest, according to those familiar with the scheme, is preparing to begin a phased withdrawal from the Republic of Ireland for over a century to secure capital and focus on key British markets.
The bank, formerly known as the Royal Bank of Scotland, is the third-largest bank when reporting its annual performance on Friday and is expected to announce a gradual withdrawal from countries operating under the Ulster Bank brand.
NatWest started a business review last year. Ulster has 15% of the Irish mortgage market, nearly 20% of SME loans, and a loan ledger of around 20 billion euros. Northern Ireland businesses that also use the Ulster Bank brand will not be affected.
NatWest will be the latest in a series of foreign lenders withdrawing from the Irish market in recent years, following companies such as Rabobank, Danske Bank and Lloyds Banking Group. That exit will focus more on the Irish government’s role in this sector. The two largest remaining banks, Allied Irish Banks and Bank of Ireland, as well as small lender Permanent TSB, hold large stakes.
NatWest is under pressure from Irish authorities to sell mortgage and business loan books to active lenders in order to remain competitive in the marketplace.
This week, the Irish Parliament’s Finance Committee highlighted concerns that the withdrawal would have “negative effects.” . . Employees, customers, banking services and market competition”. The Irish Central Bank also said it had raised concerns about its impact on competition.
It is an open wound to them. They’ve been trying to get out for years, but they can’t get away from Ulster and the regulator simply won’t allow them
In October, NatWest said it was not under discussion to sell the business to Cerberus, a private equity group that became a political hotspot after buying large amounts of bad debt from Irish banks. Someone close to the bank has confirmed that its location has remained the same ever since.
Analysts believe that NatWest can leave the republic and liberate 1.6 billion euros of excess capital. The republic is forced to hold more capital than international corporations after the republic has received large public bailouts due to the financial crisis.
The strict rules and competition in the market means that the Ulster Bank business is increasingly influencing the parent company’s results. Ulster Bank ROI posted only 2.3% return on equity in 2019 compared to 9.4% for the entire NatWest group.
A senior British banker said: “It’s an open wound to them. They’ve been trying to get out of there for years, but they can’t get away from Ulster. Regulators simply won’t allow them.”
Diarmaid Sheridan, analyst at Davy stock broker in Dublin, said: “Ulster Bank has a lot of surplus capital today. A significant amount of NatWest [total] Surplus capital. Giving it back to our shareholders is a strategic necessity.”
“There is a belief in Dublin’s banking world that some form of exit will be the conclusion.”
In a statement, NatWest said, “We continue to evaluate the impacts of Covid-19 and the challenges to the economy, and we are reviewing strategies appropriately and responsibly in light of these events.” It added that all changes will be made taking into account the impact on all stakeholders.
Withdrawal will be the second major restructuring announced by NatWest CEO Alison Rose since taking over the group in late 2019. This time last year, the company announced that it would drastically reduce the size of its investment banking units.
According to one familiar with this scheme, the company is called Adam & Co. It said it could sell part of the private banking sector and collapse the rest of the business into a larger Coutts business. The talks were first reported by Sky News.
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