PTSB likely to tap private investors before AIB

Permanent TSB is likely to tap private investors before AIB early next year, though there is little chance that both state-owned banks will weigh on each other’s prospects of raising equity, according to analysts.

PTSB — which is 99.2% Government-owned — failed the “adverse scenario” in the ECB stress tests, which exposed a capital shortfall of just under €855m.Its CEO, Jeremy Masding, said the bank had already plugged 80% of this shortfall. It has hired the investment bank, Deutsche Bank, and Davy Stockbrokers, to advise it on its options.

AIB, which is 99.8% state-owned, comfortably passed the ECB’s comprehensive assessment, which consisted of an asset quality review and stress tests. The move is likely to accelerate the timeframe for the Government to partially offload AIB back into private ownership.

“While much of the near-term attention is likely to focus on PTSB’s recap abilities, we believe that AIB represents a significantly different investment proposition, and see little risk of a crowding-out affect adversely impacting its privatisation plans, with both potentially in the market over the same period next year,” said Merrion Stockbroker analyst Ciaran Callaghan.

Moreover, the market will be prepared to pay a price above AIB’s current book value of €11.3bn, he said.

The total taxpayer funded bailout of AIB was €21bn. In June, the bank’s chairman, David Hodgkinson, said the Government would recoup its full investment over time.

AIB has €3.5bn of Government-owned preference shares on its balance sheet. Mr Callaghan expects there will be a partial redemption of these preference shares over the near term.Davy Stockbroker analyst, Emer Lang, said she expected AIB to issue a junior debt instrument over the next number of weeks. This will provide a reference point in the pricing of further issuances of additional tier one debt. AIB is in the process of restructuring its balance sheet.

Ms Lang predicts that the bank will look to an equity market transaction in the second half of next year.

On the other hand, PTSB has a deadline for its capital raising activities. It has two weeks to submit its plans to the ECB and a further nine months to raise the capital. The bank has to plug a €125m capital gap to meet regulatory requirement, although it is likely to raise more.

Ms Lang said the bank is likely to raise the capital in the form of equity as she did not view additional tier one issuance as appropriate.

On Saturday, the Irish Examiner reported there had been market speculation that the US investor Wilbur Ross was being line up to take a stake in PTSB because of his ties with Deutsche Bank.However, a source said the US private equity firms, KKR and Colony Capital, are much more likely investors.

“Raising incremental capital greater than the requirement would provide PTSB with flexibility to potentially undertake further deleveraging of its non-core CHL portfolio, which it has indicated it will manage for value. Such a move would positively impact upon Group Net Interest Margin given the negative margin dynamics of the CHL,” said Ms Lang.

“While equity engagement is earlier than expected, third party involvement in PTSB will likely accelerate further restructuring at PTSB and at €125m, the suggested level of the incremental capital is likely to be viewed as digestible.”


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