Shares in Permanent TSB fell again on Thursday, bringing their decline since the company posted interim results last week to 24 per cent, as Davy became the second brokerage to downgrade its stance on the stock in as many days.
The broker no longer expects the bank to return to paying dividends – which were scrapped at the outset of the financial crisis – until at least 2020. PTSB shares fell by 3.2 per cent to €1.90, their lowest closing price since last September.
Davy analyst Emer Lang said that 2016 was a "pivotal year" for PTSB as it completed its UK loan book sale, as per the European Union terms of its state aid restructuring plan, and the bank increased its market share in mortgages and current accounts.
However, "this progress is more than overshadowed by the challenge of reducing non-performing loans from 28 per cent of loans to a high-single-digit level in the coming years," Ms Lang said, as she downgraded her rating on PTSB's stock to "neutral" from the equivalent of "buy".
Interim figures
PTSB shares plummeted last Wednesday as the group accompanied a solid set of interim figures by offering little detail on how it plans to reduce its NPLs as the European Central Bank piles pressure on euro zone lenders to tackle the issue. Analysts concluded that the bank will have to resort to loan sales at discounted prices to help deal with its worst €2.7 billion of mortgages.
"We are concerned that this rapid NPL disposal may come at a significant discount to book value," said Investec analyst Owen Callan on Wednesday as he cut his rating on the stock to "hold" from "buy".
PTSB also said last week that an ECB-driven review of riskiness of assets across the euro zone banking system will dent the bank’s common equity Tier 1 (CET1) capital ratio by four percentage points. CET1 ratios are a keenly followed gauge of the amount of capital reserves banks have on their balance sheets to deal with unforeseen losses.
Accounting changes
This, along with the impact of further regulatory accounting changes, has resulted in Davy cutting its end-2019 estimate for PTSB’s CET1 ratio to 14.1 per cent from 16.5 per cent.
“Pending clarity on the impact of NPL reduction, we no longer assume dividends over our forecast horizon to end-2019,” Ms Lang said.
However, credit ratings agency Standard & Poor’s raised its outlook on PTSB to “positive” from “stable” on Thursday, as the bank’s ECB borrowings had fallen 70 per cent since the end of December to €1.4 billion in June.
“That said, we still see challenges to PTSB’s business model,” S&P said. “This is because the bank’s stock of [non-performing assets] is high both relative to its capital base and compared with domestic and international peers operating in economic environments facing similar risks as Ireland.”
