The Royal Bank of Scotland Group plc RBS is set to record a gain of £245 million in fourth-quarter 2015, as the UK-based banking giant offloads a portfolio of Irish real estate loans.
According to the company’s latest release, two subsidiaries of RBS – Ulster Bank Ireland Ltd. (UBIL) and Ulster Bank Ltd. (UBL) – have inked an agreement to sell the loans to a subsidiary of Irish property group Cairn Homes plc and an affiliate of US private equity firm, Lone Star Funds.
The RBS units will receive around £360 million in cash at current exchange rates. Notably, this reflects a 78% discount to the par value of £1.63 billion for RBS. As of Dec 31, 2014, the carrying value of the loans was about £115 million. The loans booked a loss of around £28 million in 2014.
The sale is expected to close by the end of this year. The company intends to utilize the sale proceeds for general corporate purposes.
Between 2008 and 2013, RBS infused £15.3 billion into Ulster Bank, which was severely hit by the financial meltdown and housing crash in Ireland. RBS shifted billions of pounds of risky Irish assets to its “bad bank” known as RBS Capital Resolution (RCR).
RCR was established on Jan 1 2014, to remove risky assets from RBS’ balance sheet to RCR in a speedy manner and gradually offload the RCR portfolio.
Hence the latest move does not surprise as it comes in line with the government owned bank’s strategy to reduce risky assets and strengthen its capital position. The shedding of the assets will reduce RBS’ risk weighted assets by £700 million.
Notably, in the latest stress tests carried out by the Bank of England, though RBS failed to meet its individual capital guidance, the bank is not required to submit a revised capital plan because of the measures already taken by the bank since 2014 to boost the capital position.
Currently, RBS carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the foreign bank space include National Australia Bank Ltd. NABZY, BBVA Banco Francés S.A. BFR and Banco Macro S.A. BMA. While both National Australia Bank and BBVA Banco sport a Zacks Rank #1 (Strong Buy), Banco Macro carries a Zacks Rank #2 Buy).
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