IL&P needs to raise €600m before pursuing merger plan
Bancassurer suffers €196m loss as bad loan provisions hit lender
Published 04/03/2010 | 05:00
Irish Life & Permanent's boss Kevin Murphy said the group will need to raise up to €600m from shareholders before it can push its loss-making bank into an industry merger.
The cash would be required to cushion Permanent TSB's balance sheet so it could stand independently from the life business.
The bancassurer swung into an operating loss of €196m last year, as bad loan losses and high funding costs hit the bank. Sales dropped by a third in the life business.
It remains uncertain whether the Government will give Permanent TSB the go-ahead to pursue its preferred option of tying up with EBS and Irish Nationwide, which are in merger talks.
Yesterday, group finance director David McCarthy also suggested the possibility of the bank partnering with British-owned Ulster Bank or even nationalised Anglo Irish Bank as the industry consolidates.
Mr Murphy ruled out going cap-in-hand to the market until he had details of a deal in place. "Typical calculations have focused on raising between €500m and €600m in a rights issue," he said.
Bad loan provisions jumped 84pc in the Permanent TSB arm to €376m last year -- though most analysts had expected the figure to top €400m. It pushed the bank into an operating loss of €270m.
At Irish Life, normally the source of two-thirds of group earnings, operating profits tumbled to €102m from €284m for 2008. It was hit by a 32pc drop in new sales as well as increased lapses in life and pension plans -- or what is known in the industry as 'negative persistency'.
Still, new life sales came in better than the almost 40pc decline expected by the market, enjoying a boost in the run-up to last December's Budget.
Irish Life & Permanent (IL&P) is sticking to its forecast that its combined loan impairment charge over three years should come in between €800m and €900m, or 2.05pc-2.3pc of loans. It expects impairments to peak this year.
But NCB Stockbrokers analyst Ciaran Callaghan said: "Our more conservative forecast assumes losses of 2.7pc -- or €1.1bn -- over the same period."
Impaired loans jumped to €753m from €128m at the end of 2008.
The pace of increase in non-performing Irish mortgages eased in the second half of last year. At the end of December, 3.9pc of accounts -- or 7,228 cases -- were at least 90 days in arrears, although an estimated 22pc of customers were suffering the effects of negative equity.
When asked to what extent Permanent TSB is restructuring mortgage payments, David Guinane, head of the banking arm, said about 7,000 customers were renegotiating their payments. Half were making interest-only payments, with the remainder divided between people on a three-month holiday or paying less than full interest, he said.
Permanent TSB faced down tough criticism by increasing its standard variable mortgage rates twice by 0.5 percentage points during the past nine months.
But Mr Murphy said its net interest margin, which fell from 1.05pc to an industry-low of 0.83pc, would have been hit by a further 0.11 points had last July's rate increase not taken place. The net interest margin is the difference between the bank's own funding costs and what it charges customers.
Mr Murphy agreed with AIB managing director Colm Doherty's comments on Tuesday that the market was "dysfunctional", as lenders continued to pay more for funding than what they can charge customers.
But he said it would be the middle of the year before banks would be able to start lowering their deposit rates, as the effects of the liquidity boost from the National Asset Management Agency begins to be felt. Meanwhile, IL&P's accounts note that the group remains the subject of investigations in relation to its controversial deposits with Anglo Irish Bank in 2008.