PTSB sale could close the book on Ireland’s financial crisis — at a cost to taxpayers
PTSB chief executive Eamonn Crowley and chief financial officer Barry D'Arcy. Earlier this week, the board of the bank announced it would be putting itself up for sale.
This year has seen significant moves by the Irish banking sector and the Government to put the last remnants of the financial crisis and the subsequent bailout of the banks to rest with the proposed sale of PTSB potentially bringing the entire sorry saga to a close.
During the summer, the Government finalised its divestment from AIB, when shareholders in the bank voted to buy back the last 2% the State held in it, bringing the total recouped for the taxpayer to €19.8bn. In addition, on Friday, €390m was returned to the State by AIB following the cancellation of more than 271 million warrants held by finance minister Paschal Donohoe.
The divestment from AIB prompted Mr Donohoe to remove the cap on bankers' pay at AIB and PTSB, which limited salaries to a maximum of €500,000 a year. This was another measure introduced in the wake of the financial crisis, and initially applied to the three pillar banks.
The State fully divested from Bank of Ireland in 2022, and as a result it was no longer subject to the salary cap.
The selling-off of the Government’s stake in AIB had been ongoing for a number of years, but PTSB never looked to be making similar moves. The third largest bank in the country — or the smallest pillar bank of the three, whichever way you want to look at it — never seemed to be in a position to buy its way out like its competitors did.
It has been making progress. Its share price has been increasing steadily over the last year but the news earlier this week it has entered into a formal sales process suggests the bank knew it was limited in how far it can go on its own.
The share price of the company is running on a post-sale announcement sugar high and is over 20% higher than it was just earlier this week. But even that boost won’t be enough to fully compensate the taxpayer for the money funnelled into the bank during the financial crisis.
As of Friday, the company’s share price was hovering around €2.85 which gives it a market capitalisation of about €1.55bn. The State, through the minister for finance, currently owns 57.4% of PTSB shares, now valued at just shy of €900m.
In 2011, PTSB received a €4bn bailout from the State and all these years later it has still not been able to fully return that money and with this sale, the Government looks set to write off a significant portion of it.
The bank has so far repaid about €2.8bn of that initial bailout — a large portion of which came from the €1.3bn sale of its former Irish Life pensions and life assurance unit.
If a sale of PTSB goes through at the current market valuation, the taxpayer will have taken a hit of about €300m. For the State to get close to recouping its total investment, PTSB would have to sell for somewhere around €2bn, which is about €3.83 a share.
This means a potential buyer would have to either pay 33% premium on top of the current market price, or the shares would have to appreciate by as much before a deal is considered struck.
"It's currently expected any recommended offer would be for the entire issued share capital of PTSB, and that offer would then be subject to shareholder approval and applicable registry consent,” Mr Crowley said.
Either way, it is unlikely the Government will recover its investment in the bank.
When asked about this during the media briefing earlier this week, the bank’s chief executive Eamonn Crowley said: “Whatever sales price we achieve at the end of this process will determine what the State will get back.”
Mr Crowley said there was strong demand for the company’s stock, pointing out a strong response which was received when Natwest Group sold its stake in PTSB for €126m during the summer.
The bank has seen strong growth in its share price this year, when it was selling at €1.37 back in January.
Mr Crowley said the bank had not received any approaches to buy it before the formal sales process was announced, and now that the process has begun, it can entertain offers and enter into negotiations in a confidential matter.
Despite being smaller than its two main competitors, PTSB could still be seen as a worthwhile acquisition by other European retail banks or investment firms.
In the immediate wake of the sale announcement, analyst at RBC Capital Markets Benjamin Toms said they are not sure who a potential buyer might be and “competition constraints mean that the other Irish banks would be unlikely buyers”.
He added they do not believe the Spanish bank Bankinter, which already operates Avant Money in Ireland, would be interested in taking over PTSB.
Mr Toms said a takeover by private equity is “probably the most likely acquirer”, which might see an opportunity from tackling the bank's large cost base.
PTSB has already been in the process of cutting costs. It is targeting getting its operating expenses down to €525m by the end of the year. Its cost-income ratio on an underlying basis was about 77% in the first nine months of the year.
It is seeking to reduce staff numbers by about 300 this year. Staff numbers at the end of September were 3,008, a reduction of 239 since year end. It currently has 98 branches However, a private equity acquisition might be of concern for its staff and its branches because deeper cuts could be expected.
When asked whether a new owner could cut costs, close branches, or reduce staff, Mr Crowley said he could not speculate on what any future owner of the bank might do.
The news of the sale comes as the company posted strong results for the third quarter of this year.
Gross loans rose 4% year-on-year to €22.4bn as of the end of September. It also grew its deposit book by 7% to €25.4bn and its mortgage book by 4%. Its total gross loans on the balance sheet rose to €22.4 billion, up 4% year-on-year.
The bank said its mortgage lending in the year to the end of September is up 64% to €2.1bn year-on-year. Its share of new mortgage drawdowns over the first nine months was over 20%. New lending in its business banking segment was up 11%.
The bank’s net interest income for the first nine months fell 6% as lower interest rates reduced margins, offsetting growth in average interest-earning assets.
PTSB reaffirmed its 2025 guidance, targeting a return on tangible equity of 9% by 2027 and 11% in 2028. It said it intends to restart dividend payments to shareholders next year.
These results point towards a company which is producing steady returns but potential buyers might also look to the Internal Ratings-Based (IRB) mortgage model review PTSB is currently going through with the Central Bank of Ireland.
Changes to this system could make the bank a bit more competitive in the mortgage market. Essentially, PTSB is required to hold more in capital to cover potential losses in its mortgage loans than its main competitors.
Should the Central Bank agree to lower these requirements, capital could be freed up for further lending. An analysis by Bank of America said €270m could be freed up to increase mortgage lending if PTSB’s limits are brought down to levels akin to AIB and Bank of Ireland.
A decision is expected next year, and if it goes in PTSB’s favour, it could make the bank that bit more valuable. That could factor into the calculations of potential bidders.
The Irish banking sector is concentrated, and a very difficult one for a new entrant to get a foothold in. In just the last few years it has seen the exits of two banks — Ulster Bank and KBC — which only served to make the remaining three pillar banks bigger, as they took on accounts and loans held by the two departing companies.
Customers tend to stay with their banks and don’t consider switching very often, which makes it difficult for any new entrant to the market to entice people in.
Revolut, and a handful of other digital banks, have taken a chunk out of the Irish market, but they also come with the downsides of having no banking infrastructure — branches and ATMs for example — for customers, which can limit the amount of services they can offer.
What an acquisition of PTSB offers is easy access to a potentially lucrative market for a relatively low price in comparison to its nearest competitors. Bank of Ireland is currently valued at €13.5bn, while AIB is valued at €16.8bn.
There is no statutory timeline for the formal sales process, but the bank said if all goes as anticipated, it could publicly announce the identity of a successful bidder and the terms of their offer during the first half of 2026.
There is a long way to go before the sale actually takes place. Potential buyers could emerge, but even if they do, negotiations could raise any number of other issues, but this sale marks a shift.
This year, the Government has signalled it finally wants to move on from the bank bailout, even if that means taking a hit on the investment return in PTSB. What that means for PTSB, however, remains to be seen.
A new buyer could come in and make sweeping changes to the bank. Job losses, branch closures and cost-cutting well beyond what the bank has already envisioned could be on the table.
In a sector as important as banking but as concentrated in three players, those changes could have significant knock-on effects.
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