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Dublin: 7 °C Friday 19 December, 2014

Ulster Bank lost €925m in deposits when Bank Guarantee kicked in

The Irish arm of RBS lost £732 million in deposits in the four days after the government guaranteed its native competitors.

Image: Eamonn Farrell/Photocall Ireland

A STATE-SPONSORED BRITISH report has revealed that Ulster Bank lost around €925 million in customer deposits in the four days after the Irish government introduced its bank guarantee for Irish-owned institutions.

A report into the circumstances that led to the British government’s bailout of Royal Bank of Scotland, Ulster Bank’s British parent, declared that the bank lost £723 million in the days after the Irish government offered a guarantee for its native banking competitors.

Ulster Bank was not among the institutions guaranteed by Ireland, because it is a wholly-owned subsidiary of RBS, which is regulated by the UK’s Financial Services Authority.

The report discusses how the backing of a sovereign state caused a major influx of capital to the covered Irish institutions and out of non-guaranteed alternatives – with Ulster Bank one of the major losers as savers moved deposits into institutions which were, notionally, more secure.

The FSA report also discusses how Ulster Bank began to concentrate on property-based corporate and residential lending in the latter part of the last decade – forcing it to ultimately write off close to £6 billion in loans over three years.

Ulster Bank incurred £4.4 billion in impairment losses between 2008 and 2010, the report said, “reflecting the scale of poor corporate property lending in Ireland, in which RBS participated.”

The bank also wrote off £475 million of residential mortgages in the same period, and £962 million of other loans in that time.

The report is elsewhere critical of RBS for allowing itself to build a loan portfolio that was so heavily exposed to the Irish property sector through Ulster Bank’s own portfolio, as well as RBS’s other exposures to the sub-prime mortgage market.

It quotes managers from one hedge fund who said RBS’s decision to retain those loans on its balance sheet as “mind-boggling”.

More broadly, the FSA’s report is critical of itself for how it allowed its own criticisms of RBS’s management to be watered down in the years approaching the British government’s bailout.

The report documents how the authority prepared a letter to be sent to RBS chief executive Sir Fred Goodwin, outlining a series of major concerns about how the bank was operating – but how Goodwin was permitted to edit the letter before it was sent to him.

The report seeks legal changes to ensure that individual bankers can be prosecuted for the failure of their institutions.

The British government injected tens of billions of pounds into RBS in 2008 and 2009 after the the potential scale of the bank’s lending losses became known. The government now owns 84 per cent of the RBS Group.

Europe gives green light to extending Ireland’s bank guarantee

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