Assets move dismissed

The Department of Finance has no plans to change the status of deferred tax assets even though it could greatly boost the value of AIB and, to a lesser extent, Permanent TSB.

AIB is holding €3.3bn in deferred tax assets, which are written off against future losses over the next number of years. Other eurozone periphery countries such as Spain have changed the status of deferred tax assets to deferred tax credits.

Market sources said the Government should follow the Spanish example as it would enhance the value of AIB in particular. In the event AIB was liquidated, then the value of outstanding deferred tax assets on its balance sheet would be worthless.

They also do not count as core tier one capital, whereas in the event that AIB was broken up or liquidated, then deferred tax credits retain their value and can be sold to third parties. The credits also count as core tier one equity, which would be attractive to potential investors in AIB.

The bank is now in a position to write off the €3.3bn it was holding as deferred tax assets sitting.

Permanent TSB has roughly €420m deferred tax assets. However, it is not expected to return to profitability until 2017. One source said he expected Finance Minister Michael Noonan to change the status of deferred tax assets to deferred tax credits in last month’s budget. A spokesperson for Mr Noonan said the department has no plans to look at deferred tax assets.

Permanent TSB is in the process of finalising its capital raising plans before they are submitted to the ECB by the end of next week. There has been speculation that the bank would like to hold onto its €400m of contingent convertible bonds rather than convert them into equity.

Following the release of the ECB’s comprehensive assessment of the banks, the results showed that Permanent TSB had a capital shortfall of just under €855m.

But because of loanbook sales and the contingent convertible notes, the actual shortfall is closer to €125m.

Speaking to journalists following the results of the stress tests, the bank’s chief executive Jeremy Masding said it was up to the Central Bank to decide how and if the notes would be converted into common equity.

A corporate financier who did not want to be named said the notes would have to be converted to attract other investors. “These [contingent convertible bonds] automatically convert to equity if tier one capital falls below 8%. That is a risk for any potential investors as their shares could be diluted.”

Under new EU banking union regulations, all banks face a stress test every year. That is why Permanent TSB will need to raise a multiple of €125m to ensure it has a sufficient capital buffer to get through stress tests, the corporate financier said.