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RBS to Reconsider Ulster Bank Sale Post October Split-Off?

Per Bloomberg, The Royal Bank of Scotland Group plc RBS will once again consider the sale of Ulster Bank, its consumer banking business in Ireland. According to people familiar with the matter, such review is anticipated to commence next year, while a decision will likely be reached over the next two years.

Notably, in 2014, the company had dropped its plans to dispose Ulster Bank owing to complexities in prospective integration, and consequently, higher selling cost. Nonetheless, the bank was thereafter split into two divisions in Oct 2015; after which, Ulster Bank’s operations in Northern Ireland were integrated into the U.K.-based parent company, while operations south of the border constituted Ulster Bank.

This, we believe, was a step taken by Royal Bank of Scotland to ease the upcoming process of divestiture. As such, it is quite likely that the company will announce a sale of the unit at the end of the review process.

Moreover, the unit, if put on the block, will likely attract investors, given the recent improvement in its financial performance. Notably, Ulster Bank, on its part, has been effectively disposing assets through an internal bad bank since last year. In fact, the bank’s assets, net of impairment provisions, declined to £500 million as of Sep 30, 2015, from £4.8 billion recorded as of Jan 31, 2014. Also, operating profit of the unit jumped 134% year over year during the first six months of 2015.

Separately, following the announcement of the split-off of Ulster Bank, in Jul 2015, Fitch Ratings had downgraded the new unit’s ratings two notches below that of the Northern Ireland business.  As per the rating agency, “the Republic of Ireland business' role within the group may become less important to RBS Group over the next three to five years and our view is that the potential for disposal is higher than in the increasingly more integrated Northern Ireland operations”.

Royal Bank of Scotland currently carries a Zacks Rank #3 (Hold).

Investors interested in foreign bank stocks can consider BBVA Banco Francés S.A. BFR, which sports a Zacks Rank #1 (Strong Buy); and  Banco Macro S.A. BMA and Grupo Financiero Galicia S.A. GGAL, both holding a Zacks Rank #2 (Buy).

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