Business Irish

Saturday 16 December 2017

PTSB gets onside with Enda's new arrears message

Enda Kenny
Enda Kenny
Richard Curran

Richard Curran

Poor old Permanent TSB. When it gets something wrong, it still thinks it got it right, until eventually it changes its mind.

Having been told by the Financial Services Ombudsman that it had not provided certain customers with sufficient information about breaking fixed-rate mortgages early, it went to the High Court. After the High Court told the bank it was wrong, it decided to go to the Supreme Court. But rather than even stick to that "conviction" that it was right, it has now dropped this final court challenge.

The move leaves the bank open to possible refunds to 2,000 mortgage customers of up to €30m. This is based on a mistake it made back in 2009/2010. Add that cost to the €70m or so it has spent on consultants, and it is €100m of taxpayers' money with questionable gains.

It is almost eight years after house prices started collapsing. It is six-and-a-half years after the state bank guarantee which saw taxpayers put €2.3bn into PTSB. It is two years after house prices, especially in Dublin, started going back up. Yet PTSB is still in state ownership, with no money paid back to the Exchequer, stumbling through its mistakes of the past and writing large cheques for consultants.

The latest consultants are Deutsche Bank, which have been hired to advise on raising new capital from private investors. Reports suggest we could see one third of the bank sold for around €400m.

As the Americans say: "Do the math". There is very little chance of the taxpayer getting its money back on this one.

After blazing a trail in the boom with the 100pc mortgage and shovelling money out to people, PTSB has been shown up for its poor treatment of some of those customers during the crisis on the issue of retaining their tracker mortgages.

Either management got different legal advice on their Supreme Court challenge or they decided it wasn't worth the grief as they would lose, but the U-turn reflects badly on the bank no matter what way you look at it. Now the Central Bank wants to have a chat about it.

It does come in the same week that Enda Kenny has got directly involved in tackling the arrears crisis. The Government is trying desperately to show its caring side for victims of the crash and austerity. Perhaps someone had a word with PTSB that the optics of a state bank pursuing this case all the way to the Supreme Court did not fit with the Government's new-found soft side on arrears.

We may never know.

CRH goes beyond the 'bolt-ons'

Brokers greeted CRH's €6.5bn purchase of Lafarge/Holcim assets as "transformative" last week. The share price rose. It seemed as if CRH's chief executive Albert Manifold had done a good deal, and it should be a chance to kick on from here.

But there is a lot at stake for CRH. It has not delivered for shareholders in recent years. Some of that was outside the group's control. The global downturn in 2008, adverse weather and the change in the cycle in the industry meant that the share prices of many big cement players crumbled.

However, the crisis also exposed a self-inflicted weakness. CRH had become obsessed with buying what were known as "bolt-on acquisitions". At one stage it was buying a new business unit a fortnight.

These deals helped grow the group's size - but the sheer number and relatively small scale of so many of them, meant they surely took up a lot of management time.

For example, between 2008 and 2013 it spent €2.9bn buying business units and took in €1.9bn selling businesses. A venture capital fund would struggle to do that many. It may believe it bought well, but it did have to take a €578m impairment hit in 2013. It also left the group without a big play.

CRH decided to sell around 45 of these businesses because they would not meet its targeted return. It put another raft of them on the watch list.

This was timely, and if anything overdue. The Lafarge/Holcim assets give management something serious to get their teeth into.

It is targeting synergies of €90m from the new deal, something which if delivered could see CRH's earnings grow by 20pc.

The company has been very conservatively run. As a result its net debt-to-earnings ratio is still a modest 2.1x, leaving it with room to do more deals. But that conservatism may also explain how its competitors have seen greater share price growth since 2011, when things started to improve.

Lafarge shares are up 175pc since November 2011. Holcim is up a more modest 60pc since August 2011. Cemex is up 255pc since August 2011. Yet before speculation of this deal hit the headlines in January of 2015, CRH was up just 32pc since September 2011. The ISEQ gained 122pc in the same period.

Manifold has landed a big fish. It will move the group from sixth to third in the global building materials rankings.

He now has to make it worth the money and extract the gains over the next three years. Big opportunities do not come along very often in the sector and Manifold has grabbed this one.

It is a much better way to deliver big gains for shareholders than collecting totally diverse small business units all over the world, only to sell them off at a later date.

Drinks industry over the line on sports sponsorship

Drinkers should not get panicked about the proposed minimum pricing for alcohol. Your bottle of Lynch Bages will remain refreshingly expensive, as will your typical craft beer.

However, if you are prone to buying a slab of cans at just over a euro each on a Friday night or two bottles of white wine for a fiver, you may have to pay a little bit more.

The drinks industry has played a blinder on this one. Big supermarkets selling cheap booze will no longer be able to use it as a loss leader. The Irish manufacturers who make spirits, Guinness, and even Bulmers will not really be affected.

They hate excise increases which make all drinks a little less affordable for everyone. Minimum pricing will hit supermarkets and may even help-off licences, as well as the health of some of the nation's tipplers.

The line in the sand issues for drinks companies are ad restrictions and sponsorship of sports events. And that is not changing. This was apparent since the National Substance Misuse Strategy Report of 2011.

The Alcohol Beverage Federation of Ireland participated in that process fully and went along with a vast array of health recommendations - but it didn't like some views on advertising.

The Department of Sport disagreed with the committee's recommendation on phasing out sports sponsorship.

Minimum pricing is a good result for the health lobby and the mainstay of the Irish drinks industry. Drinks executives also love the status quo on sports sponsorship. And they can toast it with a pint of something cool in a corporate box with free tickets at a very big match somewhere.

rcurran@independent.ie

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