ULSTER Bank and its parent company, Royal Bank of Scotland, have taken a hit of more than €4.5bn after it sold a huge property portfolio yesterday.
he bank, which is majority owned by the British government, will sell its Project Aran portfolio of loans to US investor Cerberus Capital Management for €1.4bn.
That is about 76pc below the par value of the loans, which were originally worth as much as €6bn.
The deal is by far the biggest Ulster Bank has done as it seeks to offload billions of euro in bad loans it made during the Celtic Tiger.
Unlike other Irish banks, Ulster is owned by the UK’s Royal Bank of Scotland (RBS) so none of its loans have been transferred to Nama.
However, RBS had to be bailed out by the UK government in 2008, putting taxpayers there on the hook for Ulster Bank’s losses.
Ulster Bank has cost Britain an estimated €16bn in bailout funds so far. Britain’s chancellor of the exchequer, George Osborne, had considered selling or closing Ulster Bank before deciding to retain the business.
The Project Aran deal sees Cerberus take control a huge number of assets.
The portfolio is understood to contain 1,300 borrower groups, and over 6,200 loans with around 5,400 properties.
More than three quarters of it is secured by Irish assets and about a fifth in Northern Ireland. In a sign of just how toxic these loans are; more than 90pc of them are believed to be in default.
The lender lost some £800m (€1bn) on the portfolio’s loans last year. “The carrying value of the loans is £1bn,” Ulster Bank added.
Project Aran is by far the biggest portfolio of loans to be sold by Ulster Bank since the crash.
It was originally planned to involve loans with a par value of €1.6bn.
However, that was quickly increased by €100m during the sale process, and even after the finalists for the portfolio had been decided, the bank officially increased Aran’s size to €6bn. The originally portfolio had been expected to sell at between €500m and €600m – that equated to a discount of about 65pc.
Cerberus beat off competition from fellow Americans LoneStar and CarVal to take the Aran portfolio.
The deal is expected be completed by the end of next March at the latest. Eastdil Secured, the US investment house led by Roy March, acted as adviser to Royal Bank of Scotland.
The sale is the latest collection of loans tied to Ulster Bank to have been sold off.
Project Button, which covered loans tied to the developers the Cosgrave brothers, were bought by Davidson Kempner.
Project Button had a par value close to €800m.
Project Achill, meanwhile, involved commercial real estate mostly based in Ireland. That portfolio had a par value of €1.2bn.
Most of Project Achill was bought by LoneStar. Davidson Kempner and Bank of Ireland took on smaller pieces of the portfolio.
One other part of it remains up for grabs after a court case was resolved.
Goldman Sachs, LoneStar and Cerberus are among those still bidding for the final part of Achill.
This is Cerberus’ latest major deal involving real estate on this island.
In April it took over all of Nama’s Northern Irish loan book, paying £1.2bn for the portfolio which had a nominal value of £4.5bn.