Ulster Bank, which was founded in 1836, had a reputation for most of its life of being a well run bank that never strayed too far from its founding principles.
But that would change. Royal Bank of Scotland took over Ulster Bank in 2000. The Scottish bank was looking for a play on the Irish economy, which by then was the fastest-growing in the European Union. The property sector, in particular, offered extremely lucrative returns.
The following year was a pivotal one for both banks. Fred Goodwin took over as chief executive of RBS. Fred the Shred, as he was popularly referred to by colleagues, was a man with a vision. He wanted to make RBS the biggest bank in the world. Indeed, by the time he had stepped down in 2008, he had succeeded, but it emerged that the path to the summit had been paved with reckless acquisitions and an over-exposure to high-risk markets. Former colleagues of Mr Goodwin say that his ruthless and aggressive style of management soon became the leitmotif of the entire bank.
Nowhere more so than in Ireland. Mr Goodwin wanted a signature deal to show that Ulster Bank was ready to play its part in the Irish property market. That opportunity came along in 2005.
Seán Dunne, one of the more colourful property developers of the Celtic Tiger, wanted to bring Knightsbridge to Dublin. He decided that the site of Jurys Hotel in Ballsbridge would be the perfect location. Ulster Bank made sure that it got a large slice of the action. It stumped up €326.5 million of the €379 million Mr Dunne paid for the site.
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It is understood that there was resistance to the deal among some Ulster Bank executives. For the sums to stack up, Mr Dunne would have to build densely and well past the existing skyline. The fact that the proposed development was in one of the most well-heeled parts of Dublin, with several senior members of the judiciary living nearby, greatly increased the odds that there would be a number of objections during the planning process.
Yet not only did Mr Dunne need planning permission to go his way, he also needed property prices to continue to defy gravity. They didn’t. In 2008, the property market crashed. Prices eventually would fall 60 per cent between peak and trough. The Ballsbridge site went to new owners and Mr Dunne is being pursued in the courts by Ulster Bank, among others.
Unfortunately for Ulster Bank, Ballsbridge was merely one of a number of ill-advised deals it committed to during the peak of the Irish credit-fuelled property bubble. Between 2008 and 2014, RBS had to pump £15 billion into its subsidiary to cover property-related losses.
These losses became politically toxic in the UK and financially unviable. After all, thanks to Mr Goodwin, RBS had become 82 per cent state-owned. Therefore the bulk of the €15 billion needed to backstop Ulster Bank losses came from the British taxpayer.
George Osborne, the chancellor at the time, raised the prospect of Ulster Bank being put into an RBS bad bank during his Mansion House speech in June 2013. He rowed back on this proposal subsequently.
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Then it emerged that RBS management had held talks with private equity firms about Ulster Bank.
In the third quarter of 2014, after an extensive company-wide review, it was decided that Ulster Bank would remain a core part of RBS operations.
Inevitably, the news that Gerry Mallon has stepped down as chief executive of Ulster Bank less than two years into the job has prompted renewed speculation about its future, although not with the same intensity as in the years leading up to 2014.
Similarly, when RBS announced last year that it would locate its post-Brexit EU hub in the Netherlands, it again raised eyebrows. The assumption was that Dublin would have been the obvious choice.
The prevailing wisdom is that Ulster Bank is safer as part of a much bigger entity. But is that really the case?
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It is understood that Michael Noonan, the former finance minister, favoured a third bank in the Irish market that would challenge Bank of Ireland and AIB. A potential tie-up between Ulster Bank, Permanent TSB and KBC was thought to be under consideration at one stage.
It was reported in 2014 that one of the private equity firms looking at Ulster Bank had sounded out the Department of Finance about bolting on EBS as part of the deal. Nothing ever came of these different scenarios.
Ulster Bank has a good franchise and a sound business model, but people familiar with the situation say that it suffers from neglect by its parent. There is an obvious explanation for this: RBS has spent the past decade mired in a series of scandals and streamlining its operations. Consequently, it has not has had the time to focus on its Irish subsidiary.
How long can this last? The Irish economy is growing. There is a demand for credit. There are opportunities for a bank that is willing to take them.
Mr Mallon’s replacement as chief executive will be crucial. If RBS parachutes in a candidate who will unconditionally follow the diktats from head office, then it is unlikely that Ulster Bank will be looking to aggressively expand its operations.
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Paul Stanley was acting chief executive for almost one year when Jim Brown left the bank in April 2015. He was widely tipped to get the job before Mr Mallon’s surprise announcement. People familiar with Mr Stanley say that he is more than capable and has a vision for the bank. If he succeeds Mr Mallon, then it would be a statement of intent by RBS.