By Eamon Quinn
The Government’s decision over its 75% stake in Permanent TSB (PTSB), and its future as an independent mortgage bank will “not go away” even as the lender sells down its non-performing loans and seeks to return to full financial health, a leading analyst has said.
Owen Callan, the financials analyst at Investec Ireland, said the Government owner will keep its options open but its top preference will be for some new banking entrant into Ireland to buy Permanent TSB that could compete against the two main banking blocs, AIB and Bank of Ireland.
The shares fell as much as 5% at one stage, but ended 2.3% lower at €2.10, despite the bank unveiling pre-tax profits that were up by a third to €57m for the first half of the year.
Permanent TSB hailed the reduction from sky-high levels of its non-performing loans following the sale of buy-to-let and home loans worth a gross €2.1bn under its so-called Project Glas transaction.
The sale has significantly reduced its non-performing loans to a more manageable but the still troubling ratio of 16%.
Despite redemptions, new lending over the first six months helped steady the lender, and its performing loan book was almost unchanged at €15.2bn from the end of last year.
Investors weighed, however, the gains of the Project Glas sale against a ruling by the ECB regulator for the bank to account for a higher than expected level of risk-weighted assets.
“That was the focus”, said Mr Callan, referring to the shares fall that values the lender at just over €954.8m, or about 60% below the sale price the Government pitched its initial public offering stock market shares sales over three years ago.
Permanent TSB was also falling off the radar somewhat as the write-back of provisions by the Irish banking industry draws to an end.
Mr Callan said long-standing speculation about some sort of tie-up with Ulster Bank will continue to surround Permanent TSB but that any transaction that ends in the closure of branches and job losses could be a problem for its Government owner.
Unveiling the 33% rise in pre-tax profits, chief executive Jeremy Masding told reporters the “hard work” since 2012 was paying off and managers were continuing “to rebuild the bank”.
The banks is facing pressure from the ECB and had no other option but to sell off non-performing loans, such as Project Glas, he said.
Citing sales or proposed sales by rivals, including those by Ulster Bank, he said other Irish banks were also now considering non-performing loan sales as a way of cleaning up their loan books to standards set by the ECB.
Asked about what he thought the new vulture fund owners of the loans would do, Mr Masding said he couldn’t speculate but said he saw no evidence of a “tsunami” of repossessions as a result of the sales.
He said that the Central Bank had recognised that loan sales were part of a functioning mortgage market. The bank was closing in on its target of completing its rebuilding work to be part of “a competitive banking market” in Ireland, Mr Masding said, and its six-months earnings were “a decent set of numbers” but also reflected the challenges facing the bank.
“In summary, we are happy at where we are at in the bank’s transformation,” he said.