PTSB to raise capital after failing ECB stress test

Permanent TSB, which is 99.2 per cent owned by the State, is expected to announce details of its capital-raising plan on Sunday after the European Central Bank publishes the results of its pan-European comprehensive assessments, which PTSB is expected to fail.

It is not clear how much capital PTSB will be required to raise but the expectation is it will be below €1 billion.

While the ECB will announce the results of the test and the capital shortfall facing PTSB, the Irish bank is likely to reveal the amount it will seek from the markets is considerably less than the deficit identified by the regulator.

The ECB exercise was a point-in-time examination of PTSB’s books relating to December 2013. Since then, the picture around PTSB’s finances has improved considerably, particularly in relation to collateral values on Irish property and its mortgage arrears.

The ECB figure will be a gross one. From this, PTSB is expected to net off up to €400 million in Contingent Capital Notes held by the State. Some or all of these will be allowable by the ECB to help bridge the capital shortfall.

Repair

PTSB is also expected to outline the details of actions it has taken this year to repair its balance sheet and the benefits that are accruing to the bank from recovery in the Irish economy and property markets.

Some provision writebacks and the effects of the sale of a €215 million tranche of loans held by its UK business CHL and the imminent disposal of its Springboard sub-prime mortgage book, which has a face value of €465 million, will also be used in its calculations to offset the capital shortfall.

The bank will then seek to raise the balance, which is expected to be in the hundreds of millions of euro, from capital markets.

Adviser

It has already engaged

Deutsche Bank

to advise on this process. PTSB is expected to fail the adverse scenario of the stress tests, which would give it nine months to raise the additional capital.

It would therefore need to have the funds in place by the end of July 2015.

PTSB would be expected to have received approval from the European Commission for its restructuring plan before raising any funds from the markets. Unlike AIB and Bank of Ireland, it has yet to be given the green light from Brussels.

However, given the asset sales it has completed this year and the turnaround in the domestic economy, approval for its plan is expected shortly.

As the majority shareholder in PTSB, any investment by an external investor would have to be approved by the Minister for Finance Michael Noonan.