Transfer of Ulster Bank via swap with NAMA

Reports today indicate that the UK Treasury has considered (of extent unknown) a swap with the Irish government of Ulster Bank for NAMA loans which originated in Britain.  Here is an extract from this longer BBC report.

However there is another, more radical option also being assessed by the Treasury. Which would be to simultaneously take out of RBS the most troubled of its global operations, Ulster Bank, with its substantial lossmaking business in the Republic of Ireland and Northern Ireland.

Ulster has £37bn of assets (loans and investments) on a risk-adjusted basis.

One idea would be to transfer Ulster Bank into the arms and ownership of the Irish government, by swapping all or part of Ulster Bank for low quality British loans and investments currently owned by Ireland’s National Asset Management Agency: NAMA inherited these stinky British assets when it acquired the problem loans of Ireland’s reckless banks.

There is a certain logic to Ireland taking control of Ulster Bank while the Treasury runs off the loans made in Britain by over-excited Irish banks.

That said, the chancellor may conclude that the complexities of valuing all the relevant loans and the legal difficulties in transferring ownership may be too daunting.

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57 thoughts on “Transfer of Ulster Bank via swap with NAMA”

  1. So NAMA has some decent UK assets,

    the UK Government has crappier Irish assets?

    Any swap would surely have to be on extraordinarily generous terms.

  2. At first sight this proposal would not be in the interests of the Irish people.
    Sir Meryvn is nobody’s fool and if he wants to offload UB on to the State free? Then it is likely to contain very toxic stuff. In any event we cannot control what we have been saddled with. Nein Danke.

  3. It would true revenge for the 800 years of oppression. We broke their bank so bad, only we can fix it.

  4. This is interesting.

    The UK loans are probably better performing than the Irish loans, so NAMA would likely prefer to hold on to them.

    However, the UK loans have little to do with the stability of the Irish economy and there is rationale for NAMA getting them off their books. Also, there is a large cost to NAMA in dealing with these loans.

    Simlarly, the Ulster bank loans are surely pretty poor quality stuff. However, they are more important to our economy, and could be merged with an Irish bank to help bring our banking system back to some kind of normality.

    However, where the same borrower has loans in the UK and in Ireland then it makes no sense to sell off part of their loans, as the other lender could force them into liquidation/bankruptcy.

    More importantly again, Ulster Bank appears to be built on very dodgy IT infrastructure if relatively recent systems meltdowns are anything to go by.

    All in all, if the UK or RBS wants to liquidate Ulster Bank or sell off their loans it can be done on the market. Similarly, if Ireland wants to offload UK loans that can be done on the market.

  5. If I were Ulster Bank I’d put a shed load of dross on the market at lower than firesale prices.

    When you’ve had Paddy “No Firesales” Honohan openly declaring his hand – then you know the Irish lads would swop their granny, their sisters, their wife and first born just to try and protect the vested interests in the pillock banks.

    Check and mate.

  6. @Brian Lucey

    NO NO NO

    Think about this clearly.

    With only two pillar banks the Irish financial system is unstable, three pillar banks is the kind of strong and stable foundation we need for sustainable long term growth. Five would be better still since we could lose a pillar and still be stable.

    If national budgets need to be run like those of a household it makes instinctive sense to me that banking should be approached as furniture design.

  7. RBS’ slogan used to be “make it happen”
    It was like saying “bring it on”
    And they did.

  8. So we get rid of loans with likely higher upside for convenience sake. We load the state with neven more crapola. This is AIB and its polish operations 2013 version. Whats in it for us?

  9. @ Zhou

    i dont think so. They were given the opportunity to use the original bank guarantee (and decided not to), but i thought NAMA was always only for the domestic Irish banks.

    @ Brian Lucey

    i dont think we should look to take on Ulster Bank. But if the deal was analysed (by truly independent and impartial people) and seemed to have a significant positive NPV in favour of the Irish state, would it not make sense to consider it? You seem to be saying NO NO NO no matter what, which isnt entirely rational. As i said, we owe them 4bn as things start, thats a whole heap of change to discuss things over…

  10. @Eoin

    I think you are right that this should be looked at coolly. It is possible that there is a win-win situation here. The UK Authorities don’t want the hassle and expense of dealing with Irish law and Irish agents. NAMA might feel the same about UK property.

    However, we need to decide in principle if we want this before we start out in negotiations. It might be difficult to withdraw from negotiations once they start. There is a power play in the EU these days and Germany, France et al are more into keeping the UK sweet than us. Who knows what they might try to force on us if we leave the door ajar.

    The fact that the UK is engaging in QE and is subject to different inflationary pressures is interesting. If the quality of the UK portfolio is good then it may be that there is a greater chance of NAMA recouping its money in the UK. The relatie weakness of the value Euro combined with its lack of high inflation is a peculiar mix. It is certainly within NAMA’s NTMA genes to play the currency markets. Whether it is within its statutory function is another matter.

  11. Another government controlled bank is just what we need. As we witnessed this week the banks have captured the government..NTMA come out on a bank holiday weekend to announce they have slashed the deposit rates paid by An Post by 40%. Furthermore, the bankers federation openly called for anti- competitive practices and succeeded. I’m wondering what we have a Competition Authority for.

  12. One advanatge is less legal fees from pursuing cross collateralised loans/lenders

  13. Fiat,
    So you do not think that a decline in Irish borrowing costs is a good thing. Put another way , do you think NTMA should pay too much to Irish residents for depos?

  14. So this has nothing to do with the Barclays getting their Toryboy mates to acquire the winning hand in London, then?

  15. @Tull

    Put it this way…it’s called financial repression.
    The returns do not reflect the risks in Irish banks. And then their is the question of collusion on rate setting. A bit like the Libor scandal.
    An Post will now give you 0.5% on deposit and about 2.2% locked in for three years…both guaranteed to lose you money.

  16. This is hilarious..
    “In a statement, Ulster Bank said: “While we do not comment on speculation, Ulster Bank is a core part of RBS Group and continues to make significant progress.”

    Core!!!!!!!!!and speculation

  17. Does RBS have the option to close down Ulster Bank outside the six counties? That option would seem to give RBS some bargaining power but I am not sure if it is feasible.

  18. NAMA portfolio-all ref’s to annual report-linked.
    London-21%
    Rest of GB-12%
    NI-3%
    total UK exposure 36%
    Asset sales 85% to date assets in Britain
    http://www.nama.ie/

    Refocus the portfolio to almost entirely an Irish one-why ?

    http://namawinelake.wordpress.com/2013/05/02/nama-sells-project-aspen-but-just-look-at-the-bells-and-whistles/

    Recent irish loan sale was project aspen-800mio face sold 200mio with VTB-vendor take back mtg-at 60% NAMA very kindly provided 20% of equity required.

    You want more exposure to the morbid Irish RE mkt..
    The only reason to do it is to ‘corner’ the market,such that it is,prevent fire sales and prop up the market by and not allowing it too clear and rebalance…bit unfair to the other competitors….providing the terms that the ‘buyer’ got on Aspen.
    Unless its a part of a dastardly plot to double down for the eh bounce!
    Its simply too much exposure to a rather small uninteresting market,with limited upside,keep in mind “Anglo” has to be digested too….

  19. @ Gregory

    Do Ulster Bank have the option Of closing down ther operations down here?

    1. Yes. But with a 15-20% market share, and a large branch network, that’s gonna come with significant costs.
    2. Part of the quid pro quo for the UK Treasury granting the EU4bn or so bilateral loan to Ireland was that the Irish government did not reduce unduly the scale of the Irish banks operations in the UK at too fast a pace (ie there was in sure a temptation to bring back all capital/credit to the RoI straight away). I think UB being closed down in quick fashion would be problematic given that Ireland did not shut its banks operations over there.

  20. lot easier to shut that black hole down if ya change your regulator…to say..eh the UK!
    “I have been informed by the Central Bank that it has not received any formal application to change the regulatory or legal status of Ulster Bank Ireland Ltd from that of a subsidiary of Royal Bank of Scotland Group. However, there are some informal indications that Ulster Bank Ireland Ltd may change its regulatory status and be subject to regulation by the Bank of England and the UK Financial Services Authority as in the case of its parent, Royal Bank of Scotland.”
    I have been informed by the Central Bank that it has not received any formal application to change the regulatory or legal status of Ulster Bank Ireland Ltd from that of a subsidiary of Royal Bank of Scotland Group. However, there are some informal indications that Ulster Bank Ireland Ltd may change its regulatory status and be subject to regulation by the Bank of England and the UK Financial Services Authority as in the case of its parent, Royal Bank of Scotland.”
    I have been informed by the Central Bank that it has not received any formal application to change the regulatory or legal status of Ulster Bank Ireland Ltd from that of a subsidiary of Royal Bank of Scotland Group. However, there are some informal indications that Ulster Bank Ireland Ltd may change its regulatory status and be subject to regulation by the Bank of England and the UK Financial Services Authority as in the case of its parent, Royal Bank of Scotland.”

    http://www.kildarestreet.com/wrans/?id=2012-07-12.553.0&s=noonan+ulster+bank+regulator#g555.0.r

  21. This is interesting. It’s a small vote of no confidence by HM Treasury in the Irish recovery.
    Wonder if its too much to take it in the context os slightly higher bond yields too?
    Wonder if there’s general nervousness about our overall debt burden which is crazy at the moment?

  22. I think NAMA should not take on Ulster Bank or sell its interest in the UK. The fact that the UK has a massive interest in our economy and smooth recovery is very important.

    As Polonius (fictional) said to Laertes (fictional):

    “Those friends thou hast, and their adoption tried,
    Grapple them to thy soul with hoops of steel”

  23. @ Eureka

    The UK Treasury are having the perfectly reasonable view that they are currently invested to a significant and ongoing degree in an economy in which they have little or no say in. It would make perfect sense to them to seek to swap that “asset” for ones in their own jurisdiction which they have better understanding and impact upon.

    If Ireland had its own monetary policy flexibility, and/or significant fiscal flexibility, it would make sense for it to take on UB in a swap for the UK assets (over which is has no policy power). However, seeing as it does not have either mon or fin power to any high degree, it would only make sense to conduct this swap in the NPV transfer at initiation was a decent positive figure.

  24. Why hasn’t there been significant repossessions by Ulster bank of their Irish customers?
    There is a lot of politics going on in the background.

    The UK might be starting to look for a little quid pro quo.

    I could see Nama agreeing to it on the bases they can control even more of the Irish property market.
    They have proved capable of putting a fake floor on the market and being able to “kick some tyres” as Frank Daly put it. Controlling more of the market will only enhance this ability.

  25. @ Bond
    Makes sense. Tidier.
    My analysis only: The replacement for the Troika is the ECB bond buying programme. This seems to even out yields for 10 yr bonds at about 4% – so could make sense for Irish yields to hit that level.
    Problem is not economic as much as political. Blockupy was a damp squib but did focus on the ECB rather than a government structure which is interesting. Europe has lots of taksin squares – I think political unrest is where risk lies

  26. They are taking the p**s,hoping for some that hocus pocus macreconomic nonsense,Long Term Economic Value,hows that working out for NAMA.Hold on look its just around the corner,or on a break with the confidence fairy.Gosh those paddies that overpaid their own banks may give us some that LTEV loving too,worth a shot though…..nice try.
    Clean up your own mess.
    Pg,33,Q3 2012 Loan Book Analysis-cant find update but decent spap shot.
    Any takers…….
    http://www.investors.rbs.com/download/slides/Ulster_Ireland_Update_Q4_WEB.pdf

  27. @ Fiatluxjrn: ” … part of a wider bank cleanup scheme as seen by the ECB as necessary to restore lending…”

    Restore lending? Gee, are there folks who want to borrow? Just back from a long trek into the boonies of Ballymount – near enough 20% of places are chained and shuttered. That’s confidence for ye!

  28. Core subsidiary of RBS Group: continuous capital and funding support provided by the parent
    – Cumulative capital injections of £11.4bn at FY11
    – Significant intra-group lending facility

    It seems “core” means they owe the parent truckloads of dosh.

  29. The irish govt is financially immature and simply incompetent in dealing with the debt burden,carried by irish people.
    Let the original irish developers/entrepreneurs buy their loans back at massive discounts,set up a bank/credit union and allow/encourage home owners to refi at pennies,and thank Ulster for stopping by and flooding the system with capital.
    If Sean Dunne can arrange the financing why should he be prevented from buying his loans off Ulster,is KW/GS/DB that morally superior-really !!!
    What’s so great bout yank carpetbaggers grabbing all the swag?

  30. UB losing around GBP 240m per quarter according to slide 24 in the link John Gallaher posted. It is being kept afloat by the parent . Like a microcosm of Norn Irn.

  31. @John Gallagher – Thanks for the link to the presentation by Ulster Bank. Despite the saccharine text in the titles of the slides, the actual content seems designed to give the message SELL SELL SELL! Or am I misinterpreting it? It seems very downbeat doesn’t it? Maybe bank presentations have gotten a lot grumpier from when I was younger and in London.

  32. @Gregory Connor-if you think thats downbeat try the annual report-interesting contrast to NAMA’s upbeat glossy publication-link above.
    Just reading the 2012 report-they certainly not wasting much on the presentation !
    When you go the the RBS website-its actually not even on their opening page:)
    Gosh make it all go away….please,please will those paddies swap it!!!!
    Dunne is doing their head in over here in Ct. giving them the two fingers..
    If im not mistaken the CB hit them with its biggest ever fine too,no wonder they looking at changing regulators or packing it in.
    After,reviewing latest report will contract it with that presentation and post anything interesting.
    http://www.investors.rbs.com/download/rbs_nv/UBIL_AR13.PDF
    http://www.centralbank.ie/publications/Documents/Ulster%20Bank%20Ireland%20Limited%20Final%20Publicity%20Statement.pdf

  33. JG,
    The answer to your question is that most of our property titans proved so incompetent that they could not be trusted to go to the shops on their own. We need a new cadre of investors to pick up the pieces and buy the assets at Market prices. That includes some old pals like who have not bought property since 1990s but also savvy people like yourself who can rattle the tin on the Rue de Mur. Step forward and carpe diem.

  34. @Tullmcadoo most of them were from a trades background not capital markets,but you cant deny that Mulryan,Barrett,Kelly and McKillen are world class developers.
    Dublin and Ireland needs developers/investors,you have to admit Sean’s scheme/dream for Ballsbridge was audacious and bodacious-bit glamour and drama too-so he ‘took’ Ulster for a few hundred million big deal,had 100 million of his own equity in too.Hes not crying in his cornflakes whining bout the bank guarantee,looking for scapegoats or smoking guns-up and at them Sean/Gail.
    No chance of me ever buying in Ireland-none never ever-great place visit but i no longer understand the place,not that i ever did.
    Peppers-from Australia buys home loans for pennies off GE-is now stiff arming people for payment in full-the original lender wrote it off but now its owed too Peppres/GS yeah.
    Tell them you give then 5 to 10% premium over what they paid or meet you in court…and the govt. idly sits by whilst people drown in debt and despair.

  35. should link some above-Pepper/Goldman purchased the old GE loan book of cira 600 million-they are/were subprime lender in Australia.

    http://www.pepperonline.com.au/News/PressReleases/17/pepper-agrees-to-acquire-ge-capital-s-irish-mortgage-business-and-operating-platform

    The ‘mark’ was/is around 330mio,IT,Indo,etc.
    But rest assured you poor borrowers ……….feel free to voluntary surrend your home but…..what a shower of wa**ers…yeah Sean Dunne just must just must be pursued to the ends of the earth.
    “Voluntary Surrender: You voluntarily surrender the
    property to Pepper.
    We can’t write off bad debts or ignore arrears. Even if we
    were left with no option but to repossess your house, you
    could still owe us money.”
    http://www.peppergroup.ie/pdf/Mortgage-10-min-Options_WEB.pdf

  36. @seafoid-he didnt ask to have his debts socialised,hes a big boy so were/are his lenders.He borrowed at arms length a few bob from solvent ,supposedly savy bankers,who were very well rewarded for lending it-they could have said no !
    He never borrowed any money from the taxpayer-any sign those bonuses getting clawed back……pensions…ah now.
    Seafoid the money or most of it is GONE-so are the vast majority of the developers,the young are leaving in droves.Its a distraction to amuse and enrage the public,part of a PR campaign-but enjoy those hedge funds,predatory lenders squeezing blood from a stone and terrorising poor insolvent helpless people.
    Sean can look after himself as can most the big boys.Phone a desk and back in business…oh and thanks for the memories,hes gone paying taxes over here now creating jobs,spending money at the builders providers etc.
    Well not exactly hes a benchwarmer for a while but Gail is:)

  37. @JG

    Genius is leverage in a rising market.
    He was way in over his head .
    The money is gone sure but so is the madness.

    One of those clowns bought Battersea Power station. The list of owners of that property is a list of failed property developers going back 30 years. It is all about credit. And lack of credit.

  38. @John Gallagher

    “..Tell them you give then 5 to 10% premium over what they paid or meet you in court…and the govt. idly sits by whilst people drown in debt and despair.”

    Isn’t the above situation almost entirely 100% avoidable by those deleveraging their balance sheets i.e. in most case the Irish banks and by implication the Govt. Surely its not beyond the wit of the Govt to arrange a deleveraging process and insist that the buyers are therafter only entitled to a max 10% premium over the delevered loan purchase price. This gives the Peppres of the world some upside, it gives the homeowner the debt relief the economy so badly requires and it allows the banks to delever in accordance with the PCAR estimates because a sure 10% over delevered price upside is better than ongoing battles and repossessions of product where there is no buyers.

  39. http://www.independent.ie/irish-news/bornagain-bankrupts-seek-fresh-starts-in-uk-and-states-29313815.html

    “With debts approaching €1bn and no sign that he will ever be in a position to repay them, Mr Dunne’s relocation to America has seen him draw the ire of his numerous creditors, with both Nama and the Ulster Bank chasing him through the courts with an almost missionary zeal.

    Not that the developer has been cowed by his pursuers. Indeed, fresh from declaring bankruptcy on the night of March 29, Dunne took to the pages of the Sunday Independent, declaring that: “I have paid close on €100m in personal taxes to the Irish State, outside of company taxes and the substantial levies. I estimate that I employed over 200 people annually over a 25-year period in the Irish economy and contributed €250m to the Irish Exchequer. Therefore, I am personally happy that my debt to the Irish State is clear.”

    That’s grand so

  40. @seafoid getting miles of tread-the chap who was behind it now works for wait for it…the new owners.Its a terrific piece of real estate,best my knowledge taxpayer got out whole on that one!
    “The majority of new homes – 600 out of 800 – released for sale at Battersea Power Station have been sold n a four-day sales frenzy described by the London Evening Standard as a ‘stampede’ at the fastest-selling property development on record.”
    http://www.newhomestoday.org.uk/news_features/Battersea-Power-Station-homes-fly-off-the-shelves-in-selling-frenzy

    Yes real estate is a very capital intense business-its mainly about timing,location helps too,BPS is one last great development plays in London.Fantastic location new owners will make an absolute fortune on it,Irish taxpayer could had some that.
    NAMA never had the cojones to pull the trigger on this deal,sold their loan early,crept home to Dublin.Hold on any day now any day now ,NAMA about to start building in the docks,launch the first QIF,REITS are just around the corner too….

  41. @Yields or Bust-best my knowledge Peppers not regulated by CB-could be wrong but they not taking deposits or lending simply in the debt collection business,with Goldman Sachs as a partner,GE Cap did not have the stomach for it and thats saying something…….
    The govt could set up a smaller bank/credit union seed it perhaps attract some friendlier more socially responsible capital,provide refi money to these stressed out people.If they ALL only offer 10% above the buy in….Pepper will get the message but who’s going lend them the money to get rid these predators ?
    Not sure you can regulate it though.
    @Seafoid its part of his ‘schtick’ -we are glad to have them creating wealth,hiring people paying taxes thanks!

  42. @seafoid enjoyed the exchange as always-christ can only imagine my new score on the ‘shamemeter’-Shay how about half point if your post is in response to another one?
    An oldie but my fav……for those who have not seen it.

  43. Irish gov taking over Ulster Bank seems very silly to me. From a depositors point of viw about the ony thing going for it is that it is perceived to have an implicit UK government guarantee. I can’t see any depositors in the North of whatever persuasion being at all impressed by such a move.

  44. Much as it pains me to admit it, John Gallagher is right about the fact that the developers are too easily scapegoated in the crisis.

    From what I’ve read, the banks were queuing up to loan money to Sean Dunne for his D4 plans. In many cases, no security or very poor security was sought. That is an issue for the Financial Regulator. The bankers would have all got bonuses for loaning money to developers and they’ve held on to those bonuses. Developers had to pay the going rate to buy land for development. Perhaps some developers had to ‘grease palms’ to get planning permission for some developments but this should be something for a criminal investigation of the planning authorities. In all the talk of what happened ‘on the night of the guarantee’ there is no suggestion that any developer lobbied the Government, DoF, CB, ECB, Commission, or other to have their debts taken over by the State. The State unilaterally decided to take on the liabilities of developers’ private debts with the banks.

    Unless the State is going to step in and start developing housing, commercial facilities, etc. then we are going to need private developers in future. Perhaps NAMA will supplant the role of private developers for the next 10 years and I suppose they could hardly do any worse than some of the awful housing estates, commercial developments, leisure facilites, etc. that were built by private developers during the boom.

  45. @ Bunbury
    “I suppose they could hardly do any worse than some of the awful housing estates, commercial developments, leisure facilites, etc. that were built by private developers during the boom”

    Developers have to jump through many hoops before their plan becomes ‘concrete’.

    Dunne’s Architect Henning Larsen flew to Dublin to meet Dublin City Council personnel, they were pushing an open door. The city architect at the time was Jim Barrett and on being shown three different scaled models 32, 37, 42 storeys he remarked “the 37 storey tower is the most elegant solution!”

    Just as the developers borrowed what they were allowed to borrow, they also built what they were allowed to build and indeed in many cases, encouraged to build. High rise and congestion charges were all the rage were they not?

  46. @Bunbury

    “..In all the talk of what happened ‘on the night of the guarantee’ there is no suggestion that any developer lobbied the Government, DoF, CB, ECB, Commission, or other to have their debts taken over by the State. The State unilaterally decided to take on the liabilities of developers’ private debts with the banks..”

    The same argument is now made by the Quinns – and correctly so – they didn’t borrow money from a State owned bank they borrowed it from a private institution and therefore talk from the likes of Brian Hayes TD that the Quinns now owe the taxpayer x million etc is purile claptrap.

    All roads in relation to the banks lead one to a basic undeniable fact the Govt got it wrong. The banks should have been allow to fail a lot of people should have lost money and mayhem would have no doubt prevailed for a period of months – but it would be over. What we have now is ongoing slavery.

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