Permanent TSB (PTSB) could end up taking over 20 of Ulster Bank's 88-branch network as part of a deal to acquire assets from the UK-owned lender as it retrenches from the Republic, according to a Davy analysis.
In a report that looks into the Irish banking landscape as Ulster Bank is put into winddown, Davy analyst Diarmaid Sheridan also estimates that a large portion of the bank's €10.7 billion of personal deposits as well as some of its €9 million of commercial deposits could end up being acquired by PTSB.
PTSB, which is 75 per cent State owned, is widely expected to acquire as much as €9 billion of non-tracker mortgages, consumer loans and micro-company loans under talks, announced last month, to buy assets from Ulster Bank.
PTSB has 78 branches and has considerable overlap with Ulster Bank in certain areas, meaning it is highly unlikely that it will purchase most of its departing rival’s network.
Ulster Bank's exit will reduce the number of retail banks to four: AIB, Bank of Ireland, PTSB and KBC Bank Ireland.
“The Irish banking system has arguably become too small for five full, or near full, service banks to operate in and generate acceptable returns in a low interest rate and high capital requirement environment,” said Mr Sheridan.
“The exit of Ulster Bank Ireland and the likelihood that a substantial amount of the business will remain within the existing banking system is, in our view, a large positive.”
A deal for PTSB to acquire a large part of Ulster Bank’s €20 billion loan book would have a “transformational impact” on the State-controlled lender, he said. AIB is in advanced talks to buy a further €4 billion of corporate and SME loans from Ulster Bank.
Third pillar
“It could potentially move PTSB from a distant third position in the market to a third pillar of the Irish banking system,” the analyst said.
Deutsche Bank analysts estimated last week that PTSB would need about €550 million additional capital support as an acquisition would eclipse its own €490 million market value, with the money coming "ideally" from both the Government and private investors.
However, Davy said that some of the capital could be generated from PTSB selling on more non-performing loans, which tie up high levels of reserves.
“In addition, with customer loans coming on balance sheet, it could also sell performing but high capital intensive, low returning loans to release capital and reduce any capital requirement,” the analyst said.
Ulster Bank's parent, NatWest, confirmed on February 19th that it was winding down Ulster Bank in the Republic over a number of years, as it had become increasingly hard to generate sustainable returns from the market.
