Northern Rock sells Irish deposits to Permanent TSB in €650m deal
Bailed-out lender hopes move will cut loan-to-deposit ratio by 10 percentage points
Published 31/08/2011 | 05:00
PERMANENT TSB expects to improve its crucial loan-to-deposit ratio by another 10 percentage points after agreeing to buy Northern Rock's €650m of Irish deposits.
The news comes ahead of today's results from parent company Irish Life & Permanent (IL&P), which are expected to chart further pressure on Permanent TSB's corporate deposits.
The bank, like Ireland's other bailed-out lenders, has been given until 2013 to get its loan-to-deposit ratio down to 122.5pc as part of a major restructuring of the banking sector.
Permanent TSB was the most reliant of all Irish banks on wholesale funding markets, and €249 loaned out for every €100 it had on deposit at the end of December, or a loan-to-deposit ratio of 249pc.
That ratio is expected to fall to 200pc after Permanent TSB's acquisition of Irish Nationwide's €2bn deposit book in February. It is understood that yesterday's deal will knock about 10 percentage points off that 200pc.
Some industry sources, however, speculated that Permanent TSB could struggle hanging on to the deposits since many savers moved their money to Northern Rock for the security of the UK bank guarantee scheme.
Those savers may be more likely to move their deposits to another UK bank trading out of Ireland rather than leaving them with Permanent TSB.
The deal is expected to go through by the end of the year and is subject to formal approval from the Finance Minister. The State now owns more than 99pc of IL&P and is believed to have indicated its support for the acquisition before the bank pressed ahead.
A spokesman for Permanent TSB declined to speculate on the cost of the deal, which the bank's chief David Guinane described as a "milestone" in efforts to grow the savings business. The deal will see Permanent TSB take on all 21 of Northern Rock's Irish staff, as well as some 17,000 depositors.
All staff will transfer over on their existing contracts, Northern Rock confirmed yesterday, while the only change for depositors will be migrating from the UK guarantee scheme to the Irish one.
The change means that instead of having their first £85,000 (€96,053) in savings guaranteed by the UK government, they'll have their first €100,000 guaranteed by the Irish State.
In a statement Northern Rock said the decision to sell the Irish business came after a "review of its retail funding strategy", adding that the deal would improve returns for the bank by reducing excess liquidity.