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Back to Black

Ulster Bank are back in the black after posting further operating profits of £394 million for the third quarter of this year. This is the first time the bank has reported three months' profits since it nearly collapsed.

This is welcome news for our local economy as both dealing with legacy debt and stability in our local financial institutions is paramount to the long term economic recovery of Northern Ireland. Like them or loathe them, Ulster Bank is one of Ireland’s leading banks and to give you an idea of their importance, Ulster Bank has about 2 million customers across Ireland, it employs about 6,000 people and has more than 200 branches, so has an important role to play in the economy.

RBS took control of Ulster Bank in 2000. RBS, who are now 80% owned by the UK taxpayer, have confirmed that Ulster Bank formed a core part of its group and after a strategic review the institutions will now work more closely together. RBS are looking to address the shortage of corporate, retail SME and banking in Northern Ireland as well as focusing on other consumer lending. However, despite its market position, Ross McEwan, RBS chief executive, said: "Ulster Bank know we still have a long list of conduct and litigation issues to deal with and much, much more to do to restore our customers' trust in us."

So how have Ulster Bank turned it around? It has credited its improved trading to a number of factors including an increase in demand for new lending from personal and business customers, economic growth, the bounce in the property market, lower unemployment, proactive debt management and stable restructuring costs. GDP are also aware they been working with some borrowers through mediation, achieving increased returns by consensually selling assets and/or restructuring existing borrowings, which will be adding to the bottom line. These reasons are excellent indicators for increased economic activity and relationships with existing/former customers, however...what about the loan sales?

In order to shrink its property debt exposure, Ulster Bank has been selling its performing and non-performing debts, by way of loan portfolios, to capitalise on the appetite among the larger private equity funds.  On the whole, these portfolios that have been bid on/bought to date are by large US private equity funds, often referred to as Vulture funds. This is providing a faster resolution to dealing with its own legacy debts as Ulster Bank is working to drastically reduce its property loan book over the next two years. A lot of the debt included in the sales will be debt already written off, thus adding straight to their profit figure. Back to Black.

These so-called “Vulture Funds” will now own the loans and will be responsible for the realisation of these loans. The challenge for the borrower, through no fault of their own, is how they remain in control of their assets and their business whilst coming to an agreement with the new owner.  Let's be clear from the offset, Ireland is just the latest destination for these funds, who come along and buy distressed debt and for the most part fix it up where they can and sell the assets.  This is usually the only way they can hit their returns, which normally are in the region of 15/20% IRR per annum

To be frank, this is a major threat to the local economy and there is an air of panic across Ireland. In the last few weeks, we have been approached by dozens of businesses and individuals who are concerned about what the future holds for them and their families.  Its certainly not a nice situation to be in.  

GDP came into existence in 2010 with one aim – to help people mediate with banks.  We have been very successful in this area in the last few years and are now accepted as the market leaders across the country.  In the last twelve months, we have foreseen the next big challenge, which is what is happening now through the loan sale scenarios.  We have invested a lot of time in the practice of late, trying to identify capital partners who can step in and help local SME’s retain control of their businesses.  In the last six months, we sourced new finance and agreed a settlement with one of the top private equity firms based in New York City – Conor Devine MRICS discusses same below:

The mantra in our business is to Inform, Educate and to Empower.  If your loan is being sold, why not give one of our team a call today?  Don’t be an ostrich!!

Darwin AllenComment