Finance Minister Michael Noonan has said if Permanent TSB Group Holdings, the 99.2% government- owned lender, needs to raise capital after European stress tests this month, it can do so in the markets and not upset state finances.
“Permanent TSB is strong, very well managed and becoming profitable again,” he said.
“If they require extra capital, they’re strong enough to get the small amounts of capital they require in the markets, so we don’t see any risk to taxpayers.”
Permanent TSB, the smallest of Ireland’s three surviving bailed-out lenders, is most at risk of failing ECB stress tests this month, according to Merrion Capital in Dublin and analysts including Ross Abercromby with debt ratings firm DBRS.
Mr Noonan said he has a fair idea of how the assessment is going and that the other two lenders, Bank of Ireland and AIB “are very secure in capital terms”.
His comments “may raise speculation that the Government is readying the market ahead of PTSB struggling the stress tests”, Eamonn Hughes, an analyst with Goodbody Stockbrokers in Dublin, said in a note.
“We are more intrigued by the comments in relation to AIB and BoI, which on the face of it should be supportive. Our base case is that both pass the stress tests without the need for additional capital,” he said.
The State acquired its holding in Permanent TSB after a €4bn bailout in 2011 and plans to return the bank to private ownership. The State holds €400m of contingent convertible notes in the bank, which convert automatically into equity if the core tier 1 ratio, a measure of financial strength to absorb unexpected losses, falls below 8.25%.
Banks must show they hold common equity tier 1 capital valued at 8% of risk-weighted assets for base case and 5.5% for the adverse scenario of the ECB stress tests.