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UK Economic View Sentiment towards personal finances Company Events holds up despite political backdrop 01-Oct Ferguson; FY results Greggs; Q319 Trading Update AIB Group Report that loan portfolio sale process in train 02-Oct ; Q220 Results 04-Oct Norwegian Air Shuttle; September2019 Traffic Stats Irish Interview with Ulster CEO Harworth Group New joint venture in the North West

Economic Events Ireland 27-Sep Retail Sales Aug19 01-Oct ILO Unemployment Rate Sep19

United Kingdom 30-Sep BoE Mortgage Approvals Aug19 BoE Net Mortgage Lending Aug19 GDP Q2 01-Oct CIPS Manufacturing PMI Sep19 02-Oct CIPS Construction PMI Sep19 03-Oct CIPS Services PMI Sep19

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UK Economic View Sentiment towards personal finances holds up despite political backdrop

Data published this morning by GfK for September points to ongoing resilience in consumer Alexander Wilson sentiment towards personal finances in the UK despite ongoing pessimism in the wider +353-1-641 9225 [email protected] economy.

The overall consumer confidence index improved 2 points in the month, but still sits in negative territory (-12). Consumers’ outlook for their personal financial situation over the coming 12 months improved 2 points as well to +4. On the other hand, consumers’ views on the wider economic performance over the next 12 months is still in deep negative territory (- 35, +2 from August). Another point to note is that the major purchase index, a key indicator for large ticket purchases such as residential properties, improved 1 point to +2.

The GfK’s data this morning continues to show that a tight labour market is contributing to consumer attitudes towards their own finances holding up, while, unsurprisingly given the uncertain political backdrop, consumers are still very pessimistic in terms of the wider economic performance. Expect to see more of the same trend as the future of the UK trading partnership with the EU is up in the air.

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AIB Group Report that loan portfolio sale process in train

The Irish Independent carries a story that two “ethical funds” have been shortlisted to bid for Recommendation: Buy a portfolio of mortgage NPEs from AIB. The article suggests that Irish Mortgage Holders Closing Price: €2.55 Organisation and LCM Partners will need to provide proof of funds to buy a portion of the portfolio for sale, with these funds expected to only purchase a portion of the c.8,000 loans Eamonn Hughes +353-1-641 9442 set for disposal. KPMG is running the sale process. [email protected]

The article provides no details on the potential size of the portfolio sale, though

speculation over the summer centred on a c.€1bn par value disposal (Project

Alder), a potentially similarly sized transaction to Project Beech which concluded This document is intended for the sole use of Goodbody Stockbrokers and its affiliates earlier in the year. Our forecasts incorporate a €1.4bn reduction of NPEs in H2, modelling a loan sale of €1bn, €0.6bn of organic restructures though +€0.2bn of new to impaired additions. This gets us to a 5.3% NPE ratio at year end. Whilst there are no figures mentioned in the article, nonetheless, at a minimum, it confirms a sales process is currently in train.

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Irish Banks Interview with CEO

There is a comprehensive interview in the Irish Times this morning with the Ulster Bank CEO, Eamonn Hughes Jane Howard. The article coincides with Ms Howard’s first full year in the role. The main focus +353-1-641 9442 of the article is around the need to lower costs given the interest rate backdrop, but also [email protected] touches on strategy and capital. Barry Egan

+353-1-641 6059 On the cost side, Ulster Bank noted in the H1 results that it plans to reduce the size of its [email protected] 400-strong NPE unit, understandable as it quickly shrinks its NPEs, with this unit accounting for c.17% of its 2,400 staff. Indeed, Ulster has been reducing its cost base over the past

number of years, but given the interest rate backdrop (with the CEO noting that interest

rates are unlikely to rise for at least another 4 years), the scale of cost cutting now envisaged is likely to be more far-reaching as they look to simplify the business.

Given the interest rate headwinds, Ulster Bank is often mentioned in the M&A arena, but we note Ms Howard’s comments that “I’ve not got a mandate to think about M&A”, noting that the current strategic plan involves NPE reductions, growing the loan book sensibly and taking out costs to deliver adequate returns to RBS “over the next 3 to 4 years”. However, bearing in mind, RBS has a new CEO, Ms Howard indicated that she expects to have conversations next year with the new CEO about the next steps, with the new RBS CEO likely to undertake a strategic review of the whole bank, before adding that the boards of RBS and UB have approved the strategy and she doesn’t expect that to change.

On capital, Ulster Bank has returned €3bn of capital to its parent since 2016 and has an application with the Central Bank to return more capital to the parent, with estimates (our own included) of c.€1.5bn+ of excess capital tied up in the business. Ulster Bank hopes to make an announcement prior to year-end about further capital returns to its parent.

The focus on the cost base will see Ulster Bank join a long list of banks in Europe responding to the lower interest rate backdrop, with similar commentaries also from AIB and BOI at their H1 results recently. In relation to the strategy, we note the comments of the likelihood of the new RBS CEO doing a group-wide strategic review which may bring fresh thinking about how they think about their Ulster Bank business. However, we note the comments from the RBS Finance Director at a European banks conference earlier in the week that the Ulster Bank CEO is doing an exceptional job, bringing fresh thinking and growth in high-quality businesses. But

that recovery will be slow and steady, whilst the RBS FD noted that Ulster’s ROEs This document is intended for the sole use of Goodbody Stockbrokers and its affiliates over the medium term was likely of “a sort of 2%, 4%, 6%, 8%”. I suppose the question is whether the new RBS CEO is happy with an 8% ROE?

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Harworth Group New joint venture in the North West

Harworth Group (HWG:LN) the specialist regenerator of brownfield land in the North and Recommendation: Buy Midlands of England announced a new joint venture yesterday. HWG will partner with Closing Price: £1.22 housebuilder Russell Homes – a sister company of Manchester’s leading main contractor, Russell’s Construction. The housebuilder has a track record of developing a mix of schemes Colm Lauder +353-1-641 6042 at both the high and affordable end of the housing market in locations in Greater [email protected] Manchester.

The aim of the 50:50 partnership is to pursue a strategic land opportunity in the Greater Manchester area, involving the promotion of 67-acres of land under the initial framework, with a conditional contract for the acquisition of a further 79-acres of land. Reflecting the early stage of land promotion, the deals are currently valued at £1m. The partnership is expected to deliver a combination of residential and commercial development in a region that is short of supply.

One of the key benefits of the joint venture aside from the addition to the strategic land bank is the network of regional contacts and local knowledge that Harworth will get exposure to, enhancing its regional operating model and complementing its efforts to expand in the growing North West region of England.

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