PTSB aiming for 10% equity return

Permanent TSB is forecasting a 10% return on equity for its good-bank unit by 2017 under a plan to return it to private ownership after a bailout.

The bank is targeting a 5% return on equity by 2017, including its internal bad bank of distressed mortgages and a unit of loans to be sold, according to an investor presentation seen by Bloomberg News.

Spokesman David Clerkin confirmed the contents of the presentation, dated Jan 7.

Chief executive Jeremy Masding had considered closing the 99.2% state-owned bank as its bad-loan losses soared.

The board decided that the “least worst option” was to keep it going, he said in August.

“Ireland’s economy is recovering, with clear improvements in the labour and property markets,” the bank said in the presentation. “Investors are well-positioned to benefit from improved consumer sentiment.”

Permanent TSB sees EU approval for its restructuring plan, arising from a €4bn bailout, by April, according to the presentation.

Return-on-equity (ROE) is a measure of profitability. The Bloomberg Europe Banks and Financial Services Index, which tracks 44 lenders, has a combined ROE of 3.5%. The metric fell from about 20% before the financial crisis, according to Bloomberg data.

Taxpayers have injected €4bn into Permanent TSB since Jul 2011. They recouped €1.3bn last year by selling the lender’s former life insurance arm to Great-West Lifeco, the Canadian insurer.

The bank plans to return the good bank to full or partial market ownership by 2017, according to the presentation. It will “seek opportunities to attract a strategic or capital-markets investor early in the planning period”, it said.

Permanent TSB may start marketing the good bank, which has about €15bn of loans, in the second half of 2014, a person with knowledge of the matter said in October. It also plans to start selling parts of its €10bn non-core unit, including its UK residential mortgage loans, this year, two people said at the time.

The bank plans to rebuild its group net-interest margin, what it makes on loans compared with what it pays on borrowings, to 1.5% “in the medium term”, according to the presentation. This compares with a 0.82% margin in the first half of last year, when the lender posted a €449m interim operating loss as a result of a €430m loan-loss charge.

Mr Masding said in March he sees the group, which has been unprofitable since 2008, returning to profit at the “back end” of 2016 on a month-by-month basis.