Ulster Bank dividend helps RBS recoup losses

Ulster Bank got an approval to make a dividend payment of €1.5 billion to repay Royal Bank of Scotland, its mother bank, to cover some of the spending RBS made during the Irish crisis.

RBS helped its subsidiary with £15.3 billion paid from 2008 to 2014 to help it recover after the property boom that cost a lot to Ireland. Yesterday, representatives of Ulster Bank announced the official approval by two leading banks – the Central Bank of Ireland and the European Central Bank – to make its first dividend payment. Both approvals were needed as Irish banks are in the EU banking union.

This dividend payment will become the first since the crisis that started in 2008 when bad loans forced a collapse in the financial system of the country.

The CEO of Ulster Bank Gerry Mallon said that the bank has been stabilized and there are no troubles with finances now.

Eamonn Hughes, an analyst with Goodbody stockbrokers in Dublin, said that the dividend payment showed the regulators were comfortable with the bank’s growth and “capital generation trajectory”.

“Ulster Bank’s core tier-one ratio will be in excess of 24 per cent post the dividend payment, significantly above minimum capital requirement,” he said.

“In addition to this, Ulster Bank’s risk weighted assets as a percentage of its total assets is 92 per cent — the highest among European peers. These factors suggest there is ample scope for further distributions of this nature.”

RBS sources said there would be an expectation of annual dividend payments in future but that it would be a decision for Ulster Bank.

There has been speculation about the future of the bank since a speech by George Osborne at Mansion House in June 2013. Mr Osborne, the chancellor at the time, said the government was looking at a good bank-bad bank solution for RBS and identified Ulster Bank as one of the distressed assets that could be earmarked.

In 2014 it emerged that RBS had held talks with private equity groups about selling Ulster Bank, but after a group-wide review that concluded in October that year it announced that it would retain its Irish subsidiary as part of its core operations.

Ulster Bank reported an operating profit of €606 million in 2014 after six years of heavy losses. The figure was boosted by a huge bad debt write-back. It posted an operating profit of €362 million in 2015 and €155 million for the first six months of this year.

Rumours persist about its future, however. Howard Davies, chairman of RBS, said in March that if Britain voted yes to Brexit it would leave Ulster Bank inside the EU. “We would be very concerned if we were detached from that bank,” he said.

Ulster Bank was originally organised as one business unit on the island of Ireland, but the Northern Irish division has been rebranded as NatWest and integrated with the mainland operations.

A spokeswoman for RBS said that “nothing should be read into the dividend payment” and that RBS remained committed to Ulster Bank.