Permanent TSB (PTSB) will likely sell its controversial €3.7bn group of loans called Project Glas for about half that sum and incur €325m in additional costs in the sales process, according to Davy analysts.
The proposed sale of the Project Glas loans, which includes €900m in split mortgages, has sparked considerable political opposition, with Fianna Fáil tabling legislation to impose controls over the sale process and extend regulatory oversight over the buyer of the loans.
Debt advocates have said the complete process should be scrapped.
Permanent TSB has in recent weeks argued the €900m split mortgages shouldn’t be classified as non-performing in the first place, and suggested these loans could be pulled from the sales plan.
Facing regulatory pressure, it plans to reduce the huge share of 26% of its loans which are under water to around 10% through the sale. Davy analysts Stephen Lyons and Diarmaid Sheridan claimed the political controversy over Project Glas has re-sparked questions about the bank’s future as an independent lender.
“This has also stirred investor debate regarding the prospects for in-market consolidation, which we remain sceptical of — especially in the near term,” write the analysts in the assessment which describes 2018 as “a defining year” for the bank.
The analysts believe that despite the political furore the Project Glas loans will be sold and that management can then focus on longer-term issues.
Those issues which include low-yielding tracker mortgages and a still despressed mortgage market may well “improve but will take several years to play through”, Davy said.
Analysing 16 sales of groups of Irish loans over five years, the analysts write: “This information provides useful analysis as to how a non-bank purchaser will achieve the desired return and suggests that a purchase price at 51% of par value would allow a buyer to generate a required geared return of 10% plus. Allowing for sales costs, this approach suggests additional losses on sale of €325m.” PTSB shares, which rose around 3% to €2.03, have lost 15% of their value in the past year.