Business Irish

Monday 19 August 2019

EU may force PTSB into new cash call to cover problem loans

PTSB chief Jeremy Masding
PTSB chief Jeremy Masding
Donal O'Donovan

Donal O'Donovan

Permanent TSB (PTSB) may be forced to raise fresh capital to make up for losses on loan sales, if new EU rules force the bailed-out lender to accelerate the disposal of problem loans - according to the bank that advised on its stock market flotation two years ago.

US investment bank Keefe, Bruyette & Woods (KBW) downgraded its recommendation on PTSB to "underperform" on the back of what it called "regulatory headwinds" and fears the bank could struggle to sell off non-performing loans without needing additional capital.

KBW was part of the syndicate that managed PTSB's 2015 IPO.

If PTSB was forced to raise fresh capital it would be at the expense of existing shareholders - including the State - in effect driving up the cost of the bank's bailout. A spokesman for PTSB declined to comment.

The Irish bank is profitable, which has bolstered its capital - the reserves it has against potential losses - and is already planning to sell a €1.25bn portfolio of distressed buy-to-let mortgages to help clean up the €2.68bn of soured loans on its balance sheet.

However, European banking supervisors are pushing all banks to speed up reduction of problem loans - by selling or curing the customer debts.

PTSB has the highest share of problem loans of the main Irish banks.

If it was forced to sell them off faster it would likely mean worse prices, and therefore eat up more of the capital the bank now holds.

Keefe, Bruyette & Woods analyst Daragh Quinn reduced his target price PTSB to €2, implying a 5.5pc decrease from the last regular trade. The shares closed at €2.12 each last night.

The ECB's plans to force a faster clean-up of bad loans have strong support in countries including Germany, but face resistance among countries where the bad debts are a bigger problem.

This week in Italy, the head of Banca Cariga criticised the EU's new still-to-be-approved rules, arguing they endangered a salvage operation there.

ECB President Mario Draghi said on Monday that a Europe-wide bank rescue fund should be dependent on progress tackling problem loans.

Irish Independent

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