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Rbs, Lloyds Send £2.8 Billion To Bail Out Irish Property


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On Bloomberg:

"Oct. 1 (Bloomberg) -- Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, rescued by British taxpayers last year, injected 3.03 billion euros ($4.4 billion) into their Irish units during the past 10 months amid rising real estate losses.

Records in Dublin’s Companies Registration Office show the two banks made a series of six payments, with the first in December and the most recent in August. RBS injected about 1.58 billion euros, while Lloyds sent 1.45 billion euros.

“The scale of that figure is quite shocking,” Brian Lucey, associate professor of finance at Trinity College Dublin, said in an interview. “They weren’t leaders in the Irish market. The figure just shows the level of clean-up needed.”

British banks invested in Irish real-estate developers at the height of the “Celtic Tiger” boom and are now writing down investments amid the worst property slump in western Europe. RBS, 70 percent government-controlled, and Lloyds, 43 percent taxpayer-owned, were bailed out by Chancellor of the Exchequer Alistair Darling with 37 billion pounds ($59 billion) of public money 12 months ago.

The Irish bailout’s sterling cost is 2.8 billion pounds, more than the 2.6 billion pounds spent by British taxpayers on military operations in Afghanistan last year, according to House of Commons Defence Committee figures. This year’s Afghan costs are forecast to be 3.5 billion pounds.

‘Engaged Shareholder’

“As an engaged shareholder, our priority is to protect and create value for the taxpayer,” a spokesman for U.K. Financial Investments, which manages the government’s bank shareholdings, said in an e-mailed statement today. “We will not intervene in operational management decisions of the banks.”

RBS spokeswoman Fiona MacRae did not comment on whether the bank planned to send further aid to its Irish unit. “Similar to other large international banking groups, we regularly transfer capital to and from our subsidiaries,” MacRae said in an e- mailed statement.

Asked the same question on future aid, a Lloyds spokeswoman said it continued to provide capital and funding support “as we would do in the normal course of business and on an ongoing basis.” The Treasury was unable to offer immediate comment.

Irish impaired assets deteriorated following the “collapse in liquidity in the Irish property markets,” Lloyds said in its half yearly earnings statement. About 14 percent of its Irish loan book was impaired at the half-year stage, the bank said.

Tallest Skyscraper

In one case, RBS’s Ulster Bank division backed developer Sean Dunne, who paid a then-record price of 380 million euros for land in Dublin’s embassy district of Ballsbridge. His plans to build Ireland’s tallest skyscraper of 37 storeys on the site were blocked by municipal officials. The site’s value fell to no more than 100 million euros in March, the Irish Times reported at the time, citing unnamed property experts.

The CRO records show Ulster Bank Holdings (ROI) Ltd. has received four capital injections from RBS since February. Lloyds has provided its Bank of Scotland (Ireland) Ltd. unit with two payments since December.

The banks’ payments to their Irish subsidiaries surged in the past 10 months. Earlier records show BoSI’s former owner, HBOS Plc, sent the unit a total of 538 million euros in the five years from 2003 to the end of 2007, according to CRO filings. HBOS was taken over by Lloyds in January. RBS injected a total of 1.01 billion euros into Ulster Bank in the seven years from 2002 to 2008.

Future Losses

RBS fell 1.5 percent to 52.15 pence as of 10:18 a.m. in London trading. Lloyds dropped 1.3 percent to 102.4 pence.

Ulster Bank, which operates across the Republic and in Northern Ireland, has about 40 billion euros in mortgages and other property lending, while Bank of Scotland (Ireland) has about 23.5 billion euros, Bloxham Stockbrokers analyst Kevin McConnell wrote in a research note on Sept. 3.

House prices in Ireland have fallen 24 percent from their early 2007 peak levels, mortgage lender Irish Life & Permanent Plc said in a Sept. 28 report. Commercial property prices may drop 75 percent while development land values may slump 80 percent from their peak, Goodbody Stockbrokers said on Sept. 1.

U.S. banks have recognized about 60 percent of their expected losses, compared with 40 percent in both the euro area and the U.K., the International Monetary Fund said yesterday. Bank earnings will not be enough to offset future losses, the fund added. In the euro zone and U.K., “muted economic activity and rising unemployment are expected to push up loan losses.”

Irish Bailouts

Ulster Bank warned of rising loan impairments for the rest of 2009 as it reported a nine-fold increase in bad loans and a first-half loss of 8 million euros on Aug. 5. The bank has cut 750 jobs across Ireland and closed three-quarters of its 60 First Active mortgage branches.

At the top of the property boom in Ireland in 2007, LLoyds’ Irish unit posted a pretax profit of 272 million euros, up 28 percent. In the same year, Ulster Bank profit rose 22 percent to 513 million pounds.

Bank of Scotland (Ireland) is the second-biggest holder of debt owed by Liam Carroll, a developer whose projects include the construction of Google Inc.’s European headquarters in Dublin. He’s failed three times to secure the protection of the courts for his companies, which owe 1.3 billion euros to banks.

Ireland’s government has propped up its two biggest lenders, Allied Irish Banks Plc and Bank of Ireland Plc with 3.5 billion euros each. The now-nationalized Anglo Irish Bank Corp. has received 4 billion euros in state aid. "

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