PTSB return to profit ‘at risk’ from pressure to cut rates

Permanent TSB Group Holdings has warned potential investors that a return to profit may be at risk from Irish political pressure to cut interest rates and an UK exit from the European Union.

PTSB may be forced to lower its existing 4.5 per cent standard variable rate on mortgages because of mounting political, regulatory or competitive pressure, the Dublin-based lender said in a 132-page capital raising document obtained by Bloomberg News.

Officials at PTSB and Deutsche Bank AG, lead manager of the capital raise, declined to comment. A spokesman for Davy in Dublin, the joint lead manager, wasn't immediately available for comment.

State-owned PTSB is seeking to sell €400 million of equity and €125 million of so-called additional Tier 1 bonds to shore up its capital after failing European stress tests last year.

Chief executive Jeremy Masding said on April 8th that the bank is close to returning to profit, without detailing a timeframe. Permanent TSB posted a €48 million pretax loss last year.

Earlier this month, Taoiseach Enda Kenny told parliament his government wasn’t happy that Irish mortgage rates are higher than the euro-area average, after banks raised variable rates to offset losses on tracker loans during the financial crisis.

Such loans are linked to the European Central Bank’s key rate, which stands at a record-low 0.05 per cent.

“The group is exposed to risk in respect of the manner in which it determines and implements interest rate changes,” it said in the document, dated Tuesday. Funding Costs PTSB also said that its funding costs would be “materially adversely” impacted by the UK leaving the EU.

So-called Brexit "would have profound implications for Ireland", the company said. Should UK prime minister David Cameron win a second term next month, he pledged to renegotiate Britain's EU membership and hold a vote by the end of 2017 on whether to remain in the common market of more than 500 million people.

PTSB’s new shares and AT1 securities may be priced next week, according to two people with knowledge of the matter, who asked not to be identified, as a final decision hasn’t been made yet. Companies seeking to raise capital typically highlight a series of risks potentially facing investors, with PTSB pointing to 33 such factors.