Permanent TSB plans to raise €525m of capital to bolster its balance sheet after failing European stress tests last year.
The mortgage lender will seek €400m of equity to repay and replace the same amount of contingent convertible notes that the State bought in 2011 as part of a bailout, it said in a statement yesterday. It also plans to raise €125m of additional Tier 1 capital.
The lender, which is 99% state-owned after receiving a net €2.7bn bailout in 2011, said its pretax loss narrowed to €48m last year from €668m in 2013.
The European Commission has agreed to a restructuring plan for the company following its rescue, it said yesterday. The approval will help the bank as it seeks to raise equity.
“Today’s announcements herald a series of moves which will, on completion, transform the Permanent TSB Group and start the process of returning the group to the private sector as a stand-alone, competitive and successful force,” chief executive Jeremy Masding said.
The Government intends to remain a majority shareholder after the sale, which PTSB plans to complete by the end of June, Mr Masding said. Small investors, who own 0.8% of the bank, will be allowed to buy stock in the transaction, according to the lender.
Permanent TSB hired Deutsche Bank and Davy to assess market demand for a share sale after it failed the adverse scenario of European Central Bank stress tests.
The lender said at the time it had already covered more than 80% of a €855m capital hole found in the tests, with the State’s €400m of contingent convertible bonds and by shrinking its balance sheet.
The bank said yesterday it has agreed to sell about €5bn of non-core assets including €3.5bn of UK mortgages and €1.5bn of mainly Irish commercial real estate loans. The UK loans are set to be sold to Cerberus Capital Management, PTSB said. A group led by Deutsche Bank won the bidding for the Irish loans, comprised of two portfolios, according to sources.
After these sales, PTSB will have completed more than half its deleveraging plans, said Mr Masding, who took over in 2012.
“On first look, PTSB’s capital plan and investment case appear credible with the non-core deleveraging of low-yielding UK loans to significantly transform the balance sheet and enhance viability,” said Ciarán Callaghan, an analyst with Merrion Capital .
The bank was able to narrow its pretax loss after it released €42m previously set aside to cover bad loans. In 2013, it had a loan-loss charge of €929m.
AIB and Ulster Bank also freed up loan-loss provisions last year, helping their return to profit for the first time since the property crash in 2008.
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