Permanent TSB outlines risks to potential investors

Permanent TSB Group has warned potential investors that a return to profit may be at risk from political pressure to cut interest rates and a potential British exit from the EU.

PTSB may be forced to lower its existing 4.5% standard variable rate on mortgages because of mounting political, regulatory, or competitive pressure, the bank said in a 132-page capital-raising document obtained by Bloomberg News.

State-owned PTSB is seeking to sell €400m of equity and €125m of so-called additional tier 1 bonds to shore up its capital after failing European stress tests last year.

Chief executive Jeremy Masding said earlier this month that the bank is close to returning to profit, without detailing a timeframe. PTSB posted a €48m pre-tax loss last year.

Earlier this month, Taoiseach Enda Kenny told the Dáil the Coalition wasn’t happy that mortgage rates are higher than the average in the eurozone, after banks raised variable rates to off-set losses on tracker loans during the financial crisis. Such loans are linked to the ECB’s key rate, which stands at a record-low 0.05%.

“The group is exposed to risk in respect of the manner in which it determines and implements interest rate changes,” PTSB said in the document.

PTSB also said that its funding costs would be “materially adversely” impacted by Britain leaving the EU. Such a move “would have profound implications for Ireland”, the company said.

Should British prime minister David Cameron win a second term next month, he pledged to renegotiate Britain’s EU membership and hold a vote by the end of 2017 on whether to remain in the common market of more than 500m people.

PTSB’s new shares and additional tier 1 securities may be priced next week, according to two sources.

Companies seeking to raise capital typically highlight a series of risks potentially facing investors, with PTSB pointing to 33 such factors.


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