Permanent TSB seen selling UK loans within year by Davy

Davy sees Permanent TSB selling its UK loans earlier than feared, following a surprise recovery in Britain's mortgage-funding market following the Brexit vote.

Upgrading its rating on the 75 per cent Government-owned lender's stock to outperform from neutral, Davy said it now sees PTSB selling its remaining UK home loans portfolio within the next year. It had previously forecast a disposal of the remaining near €3.5 billion buy-to-let loans held by its UK subsidiary Capital Home Loans (CHL) in the middle of 2018.

Shares in PTSB surged as much as 5.6 per cent in early trading on Monday to €2.17.

"The upturn in the UK residential mortgage-backed securities market post the Brexit vote has come as a welcome surprise, particularly as the UK RMBS market is likely to prove a key funding source for potential acquirers of PTSB's UK mortgage book," said Davy analyst Stephen Lyons in a note on Monday.

PTSB off-loaded about half its CHL loans to US private equity giant Cerberus last year. The bank had agreed with competition authorities in Brussels, following its State bailout, to sell off the remaining loans in the portfolio by the end of June. However, the UK's decision to hold a referendum on its European Union membership and subsequent decision to quit the EU has cast doubt over when the sale may happen.

Timing

The timing and terms of an extension to the deadline are currently under negotiation. PTSB currently only has to sell the portfolio if it is forced to accept no more than a 10 per cent discount to book value.

Last week saw UK specialist lender Kensington Mortgage Company sell RMBS backed by very recently issued mortgages.

“Even more significant, however, was the announcement on Friday [of an RMBS sale] directly backed by former CHL mortgages sold by PTSB to Cerberus in 2015,” Mr Lyons said.

Mr Lyons said Davy’s view of PTSB has been further bolstered by its own sale of €500 million of Irish RMBS last week, rising mortgage approvals and positive media reports that the upcoming budget may include landlord reliefs in addition to well-flagged first-time buyer support.