Permanent TSB is still awaiting approval from the European Commission for its restructuring plan, which would see the bank split into three units: a good bank, an asset management unit, and a division to manage its UK operations.
Chief executive Jeremy Masding is adamant the core bank can emerge as a viable entity and play a role in the economic recovery. To this end, he faces many formidable challenges. Securing approval from the Commission is obviously the first essential step.
The asset management unit is responsible for managing the portion of its mortgage book in arrears. However, possibly the biggest challenge facing the bank is what to do with its mostly loss-making €15bn tracker mortgage book, which is also in the asset management unit.
Mr Masding said he was not in discussions with the Department of Finance over a solution to the tracker mortgage book. He declined to say how much it was losing over a 12-month period, but given that it is just under half of its entire loan book, it has to be a huge drag on growth.
Unless a solution is put in place for tracker mortgages that sees it hived off into a special purpose vehicle that is either funded by the ECB or the ESM, it will remain a massive constraint on future profitability.
The UK business is considered non-core and is expected to be sold once a reasonable offer is in place.
The current net interest margin is 0.72%, although that should improve next year because of the action taken on the cost base. The target for the good bank is to have a net interest margin “north of 1.5%” in 18 months’ time.
Mr Masding is guiding that the core bank could be profitable and delivering returns to shareholders before 2016.
The chief executive said his priority when he took over in Feb 2012 was to introduce proper systems to deal with the mounting mortgage arrears problem.
Mr Masding described 2012 as a “transformative year.”
As of January, the asset management unit is up and running and putting in place treatments for distressed customers.
The plan is to offer interest only repayment terms to customers who have temporary problems.
There are two long-term treatments, which include split mortgages and maturity extensions. There are 500 customers on six-month trials for long-term treatments.
Mr Masding is confident the bank has enough capital to withstand losses until it returns to profitability.
Events in Cyprus over the past week, which included burning depositors over €100,000, have not had any impact on PTSB, he said.
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