Sunday 23 July 2017

A slimmed-down IL&P may still be on the shelf as unloved entity

Joe Brennan

KEVIN Murphy likes to point out that his IL&P stands alone among state-guaranteed lenders in not needing to join NAMA or requiring a bailout from the taxpayer.

But it could now be left at a distinct disadvantage for not having ploughed into property development in the boom years -- as the Government does everything in its power to save those that did.

That's not to say Permanent TSB doesn't have problems of its own. With a loan-to-deposit ratio of 246pc -- that's €2.46 out on loan for every €1 on deposit -- it is the Irish bank that is most reliant on the volatile wholesale market for funding.

It was also one of the first to dive into the 100pc-mortgage space -- compounding the fact that more than a fifth of its Irish home loan borrowers are now wallowing in negative equity.

But in comparison to the expected €35bn-plus of combined-loan losses that analysts expect the big three -- AIB, Bank of Ireland and Anglo -- to stomach, Permo's expected losses of up to €900m over three years are much easier to handle.

Therein, however, lies the nub of its problem. IL&P knows the bank doesn't have much of a standalone future, as the mortgage market remains under the cosh and it struggles to lower its wholesale funding dependency.

The group also needs to execute a deal to refocus the market's attention on its valuable life business, which is expected to turn in a significant improvement in performance this year.

Were the bank's loan loss forecasts much higher, the State would have no option but to make the bank a priority in its list of arranged marriages with other institutions.

It's not as though IL&P hasn't tried to pretty up Permo. She's lost a bit of weight -- by sending some workers off on a career break of up to three years and recently moving to cut 120 jobs by closing 11 branches. The group has also restructured it into a new holding company in order to facilitate a speedy deal.

Murphy is even prepared to hive the bank off with a dowry of up to €600m to ensure its capital reserves are enough to settle happily into its preferred tie-up -- a ménage a trois, of sorts -- with EBS and Irish Nationwide.

The Government has nudged those two societies into talks as it prepares to pump up to a combined €2.4bn into the duo.

Fears that Permanent TSB will be shut out have probably prompted the group to highlight yesterday that it could yet partner up with Ulster Bank or even the nationalised Anglo Irish Bank.

Anything, it seems, is better than being left on the shelf.

Irish Independent

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