NatWest set to take 16.7% of PTSB in Ulster Bank loan sale deal

UK banking giant NatWest Group is set to take a 16.7 per cent stake in Permanent TSB (PTSB) under a deal to sell a large part of its Ulster Bank unit's loans and other assets to the Irish State-controlled lender.

The figure was revealed on Friday as both sides confirmed they had signed a binding agreement for PTSB to acquire about €6.8 billion of mortgages and business loans from Ulster Bank, as it exits the Irish market.

The size of the transaction is smaller than the €7.6 billion estimated in June when an initial memorandum of understanding was agreed. A PTSB spokesman said the difference is down to expected loan repayments between the middle of this year and the completion of the loan sales between late 2022 and early 2023.

The deal, which also includes 25 of Ulster Bank’s 88 branches in the Republic, will be funded by €6.4 billion of cash, plus NatWest taking an expected 90.9 million of new PTSB shares. That will give it a 16.7 per cent stake, worth about €136 million, based off PTSB’s closing share price on Thursday.

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PTSB’s loan book will grow by close to 50 per cent, after more than a decade of shrinkage in the wake of the financial crash, and will see its branch network expand by 30 per cent as a result of the transaction.

“Reaching a binding agreement is a significant step forward and supports our strategy of growing organically while embracing this once-in-a-generation opportunity to fast-track the growth of Permanent TSB,” said PTSB chief executive Eamonn Crowley.

Mr Crowley said earlier this year that the loan purchase – combined with the result of a contraction of the Irish market from five retail banks to three, with the planned exits of Ulster and KBC Bank Ireland – should boost PTSB’s profit return on equity to 9 per cent over the medium term. It was delivering a return of 2-3 per cent in the years leading up to the Covid-19 pandemic, a fraction of the 8-10 per cent that analysts see as the sign of a viable bank.

Staff transfer

Some 450 of Ulster Bank’s 2,500 employees are set to transfer to PTSB with the deal. A further 280 will move to AIB as part of that bank’s agreed purchase of €4.2 billion of corporate loans. The Irish Times has previously reported that Ulster Bank is also in talks to sell its €6.5 billion tracker mortgage portfolio to AIB.

The accord is subject to approval from the Competition and Consumer Protection Commission, the Central Bank and PTSB shareholders. Both sides expect Ulster Bank’s performing non-tracker mortgages, which make up most of the deal, to transfer in the fourth quarter of next year. Ulster Bank’s performing micro-business loans and its Lombard Asset Finance loan business, which had combined portfolios amounting to €630 million in June, will move shortly thereafter.

Ulster Bank said: “There is no need for any Ulster Bank customers to take any action. If they are potentially impacted by today’s announcement, we will be in contact with them directly and letters and emails will be sent to potentially impacted customers as soon as possible between now and early January.”

The new shares being issued to NatWest will dilute the State’s stake in PTSB from 75 per cent to 62.5 per cent. The UK bank will enter a shareholder co-operation agreement with Minister for Finance Paschal Donohoe to ensure orderly PTSB stock sales by both sides in the future as they seek to ultimately lower their holdings.

‘Positive development’

“This transaction is a very positive development for PTSB and represents a significant opportunity for the bank, its stakeholders and its customers to consolidate its position in the Irish banking market and position itself for future growth,” said Mr Donohoe.

“With the withdrawal of Ulster Bank and KBC from the Irish market, a PTSB with greater scale has a more important role than ever in providing meaningful competition for consumers in terms of both product choice and pricing.”

Sinn Féin welcomed the deal, saying the additional scale for PTSB would support greater competition. However, its finance spokesman Pearse Doherty raised concerns regarding the timeline of completion of the transaction, and the outsourcing of mortgage servicing to Pepper Finance.

“It is crucial that the regulator takes all steps to ensure adequate support for customers of P TSB throughout this process. That includes examining the timeline in which this process is concluded,” he said.