DUBLIN - Royal Bank of Scotland Group PLC is plotting a retreat from Ireland after spending 15.3 billion pounds ($26 billion) over the past six years bailing out its operations in the country.
The British bank (and parent of Providence-based RBS Citizens Financial Group Inc.) is looking for investors to buy a stake in its operations in Ireland or for another bank to merge with the division, allowing RBS to dilute its holding, after racking up 17 billion pounds of losses from bad loans in the worst real estate crash in western Europe.
RBS CEO Ross McEwan is under pressure to return some of the 45.5 billion pounds British taxpayers injected into the Edinburgh-based lender during the financial crisis of 2008 in the biggest banking bailout in the world. Ireland’s economy is rebounding from the worst recession on record, helping him to attract buyers for the first time since the financial crisis.
“The timing may reflect a political rather than a commercial agenda,” said Stephen Lyons, an analyst at Dublin-based Davy, Ireland’s largest securities firm. “It seems odd that they’re looking for outside investment now, when Ulster [Bank] is at the point of returning to profit. Selling a stake in the near term wouldn’t capture the business’s proper value.”
Ulster, Bank of Ireland PLC, the nation’s largest lender, and Allied Irish Banks all returned to profit in the first quarter for the first time since the onset of the financial crisis. The National Asset Management Agency, set up to rid Irish lenders of toxic property loans, expects to make a profit of 1 billion euros ($1.36 billion) over its lifetime, according to a person with knowledge of the matter, amid a surge in demand for real estate assets in the country.
RBS is yet to return a penny of its bailout to British taxpayers. The government has cut its stake in Lloyds Banking Group PLC to 25 percent and is preparing to offer a further chunk to individual investors later this year. RBS stock trades at about 345 pence, below the 407 pence price at which the government would break even on its investment. The Conservative-led coalition faces a general election in 2015.
“The U.K. government is looking down the barrel of a general election,” said Ray Kinsella, banking professor at University College, Dublin. “There’s little doubt that the U.K. is putting pressure on RBS to accelerate restructuring, including increasing lending to the domestic economy, and to reduce its direct exposure to a problematic presence in [Ireland].”
McEwan and Jim Brown, who leads Ulster Bank, declined to be interviewed for this article through Linda Harper, a spokeswoman for the bank in London.
RBS has hired Morgan Stanley to review its Ulster unit. McEwan pledged on Feb. 27 he will retain RBS’s operations in the North, which is still part of the U.K. The lender is still open to ceding control of Ulster in the Republic of Ireland, according to a person with knowledge of the matter.