NatWest to exit Ireland, tumbles to 2020 loss

[February 19, 2021]  By Iain Withers and Lawrence White

LONDON (Reuters) - NatWest said it would wind down its Irish arm Ulster Bank, as Chief Executive Alison Rose continues to slash away at underperforming parts of the state-owned lender after it swung to a loss in 2020.

The bank will exit Ireland following a strategic review, plans to sell 4 billion euros ($4.8 billion) worth of loans to Allied Irish Banks, and discuss selling some assets to mortgage lender Permanent TSB, NatWest said on Friday.

NatWest reported a pre-tax loss of 351 million pounds for the year, better than an average of analyst forecasts of a 418 million pound loss as bad loans came in below expectations.

The move to sell Ulster Bank is the latest by NatWest CEO Alison Rose to strip out costs and simplify the lender since taking the helm in late 2019, after cutting back trading unit NatWest Markets and axing digital venture Bó just months after its launch.

Ulster Bank has served customers in Ireland for more than 160 years and is the country's third largest lender with a 20 billion euro loan book and 2,800 staff.

The decision follows a months-long review and sparked immediate criticism in Ireland, where the government and regulators have expressed concerns over shrinking banking competition.

Irish Finance Minister Paschal Donohoe said on Friday the banking landscape would be poorer as a result of NatWest's decision.

"I won't say the Irish government welcomes this decision, they do not. But it is supportive of the plans to dispose parts of the business to AIB and the discussions we're having with Permanent TSB," NatWest chairman Howard Davies told reporters.

Rose said the exit - which does not cover NatWest's Northern Irish unit - would take a number of years and would be done "in a very considered way".

NatWest shares were up 1% at 9.48 GMT, after initially rising as much as 2.5% in early trading.

"Alison Rose is making a name for herself as a no-nonsense leader, keeping the core business healthy by adding to its core business and chopping off the gangrenous limbs," said Freetrade senior analyst Dan Lane.

A woman uses an Ulster Bank ATM to take out cash amid the spread of the coronavirus disease (COVID-19) pandemic, in Galway, Ireland, December 22, 2020. REUTERS/Clodagh Kilcoyne/File Photo

"That ruthless streak will serve her well in a year that's likely to be even harder than the last."

PROFIT SQUEEZE

Despite posting a loss, NatWest announced it would pay a dividend of 3 pence per share, after the Bank of England gave lenders the green light to resume investor payouts.

The bank remains 62% taxpayer-owned as a legacy of its state bailout in the 2007-09 financial crisis, meaning the government will receive 225 million pounds of the overall 364 million pound pot.

It pledged to increase shareholder returns in future years by distributing at least 800 million pounds per year from next year up until 2023.

British banks' profits have all been squeezed by near-zero central bank interest rates and a spike in expected loan defaults due to the pandemic.

But unlike rival Barclays, which reported robust profits on Thursday, NatWest could not count on a surge in revenues at its own much smaller investment bank NatWest Markets to prop up its earnings.

Overall, NatWest's impairment charges for expected bad loans came in at 3.2 billion pounds for 2020, below the bank's guidance of a minimum 3.5 billion pounds.

The lender has granted around 14 billion pounds of state-backed loans to struggling companies so far in the pandemic.

It maintained one of the strongest capital ratios among its peers, up to 18.3%.

The bank said by 2023 it would aim to reduce its capital buffer to 13-14%, hit a return on tangible equity of 9-10% and reduce costs by 4% a year.

Rose's pay was 1.8 million pounds, after she voluntarily gave up a quarter of her fixed pay for 2020.

(Reporting by Iain Withers and Lawrence White; Editing by Rachel Armstrong and Emelia Sithole-Matarise)

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