NatWest’s struggle to sell Ulster Bank

natwests struggle to sell ulster bank

Sumary of NatWest’s struggle to sell Ulster Bank:

  • In an era of ultra-low interest rates the traditional business model looks much less attractive to investors, as NatWest, a large British bank, has found while trying to sell the Irish operations of its subsidiary, Ulster Bank..
  • While there has been interest in the loan book from private equity firms, no-one wants to take on the branch network and deposits..
  • In February NatWest announced that the branches would be closed, and the Ulster Bank Irish business would be wound down over the coming years..
  • As a private equity boss says, in the past “you would buy a deposit business because it was a source of cheap funding, but today you can get even cheaper funding from markets without the hassle of running bank branches.”.
  • Banking used to be about what is technically known as maturity transformation—borrowing for short periods and lending for longer ones..
  • The classic example would be a bank borrowing in the form of small deposits from savers that are repayable on demand and lending in the form of a 25-year mortgage..
  • But that model relies on a decent spread—or net interest margin—between short term and long-term borrowing costs..
  • Thirteen years of low interest rates have pushed the margin for British banks down from over 3% in 2007 to closer 2% by 2019, effectively making the core business of banking about a third less profitable..
  • With their core business in the doldrums, and likely to stay there, the banks have been trying to generate new sources of profit..
  • Lloyds, another big bank, is considering expanding into the property business, leasing homes directly to tenants….

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