Irish Life Permanent went with a whimper

ANALYSIS:Yesterday's 2011 accounts marked the end of Irish Life Permanent as we know it

FOR MOST Irish banks 2010 was a dark year, but Irish Life Permanent stood strong after avoiding the property lending that pushed four other banks into State hands. That must seem like a lifetime ago for the company as the mortgage crisis intensifies.

Profitable Irish Life, which had for three years kept Permanent TSB out of any kind of State ownership, has been sold to the Government to bail out the bank.

Yesterday’s 2011 accounts are the last from Irish Life Permanent as we know it. The company went out with a whimper; it didn’t even make a public presentation of its figures, citing the ongoing splitting up of the group as the reason.

The figures reflected the “continuing operations” – Permanent TSB and the UK mortgages – as the banking and life businesses are separating, following Irish Life’s sale to the State for €1.3 billion, which completed the recapitalisation of Permanent TSB.

Even that deal carried with it a negative hit – it led to a charge of €104 million to writedown the carrying value of the life business to the sale price paid.

While the State is getting a profitable business, Irish Life was accounted for in Irish Life and Permanent’s (the bank’s) “discontinued operations”.

It made an operating profit of €96 million compared with €212 million, a fall attributed to the declining value of equity, bonds and investments.

For the remaining €2.7 billion it has spent on the group, the Government is getting a damaged business in Permanent TSB.

The loans-to-deposits ratio is still unacceptably high, even with Irish Nationwide’s deposits.

Mortgage arrears and losses have risen sharply (as flagged by the company in February), and the net interest margin has been squeezed by high funding costs and Government guarantee fees.

Even before the guarantee costs, Permanent TSB’s net interest margin is below one percentage point, which means profitability is a long way off, unless there is a bigger solution.

This makes a restructuring as part of changes to the Anglo/Irish Nationwide promissory note repayments all the more pressing for Permanent TSB as it could remove the drag of €16 billion of loss-making tracker loans.

A decision on whether Permanent TSB has a future must be made by the end of this month and a wind-down is one of four or five options being explored.

Chairman Alan Cook said they were working on a strategy to enable Permanent TSB to “participate as a meaningful player in the Irish banking market” and were confident it would return to profitability “over the coming years”. Given the state of Permanent TSB, this may be too optimistic (as the company has been in the past); the future of the bank rests on many external factors and decision-makers.