PTSB to reduce value of defaulted Irish tracker mortgages

Permanent TSB has committed itself to reducing the value of its defaulted Irish tracker mortgages under the terms of its updated restructuring plan, which was approved by the European Commission yesterday.

It has also agreed to the disposal of certain non-core assets in Ireland and the UK, to offer rivals the opportunity to market their services to PTSB customers and to restrict its holdings in Irish sovereign bonds.

All these measures must be implemented by the end of 2018.

On tracker mortgages, PTSB has agreed to reduce the value of defaulted home loans through a combination of cures and asset sales by a predetermined date, which it has not disclosed. It’s not clear how much of PTSB’s Irish tracker loan book – which had a gross value of €14.9 billion at the end of 2014 – is in default.

Capital Home Loans

PTSB has also agreed to sell the remaining loans in its Capital Home Loans (CHL) residential mortgage book in the UK, subject to achieving an “acceptable price”. These are mostly buy-to-let loans involving Bank of England tracker mortgages.

It has been closed to new business since 2008 and is in run-off.

At the end of 2014, CHL had gross mortgage loans of about £5 billion, although PTSB announced last month that it had agreed to sell about £2.5 billion of these loans.

The bank said it was “examining the opportunities for the sale of the remaining elements” of the CHL mortgage book and its non-performing Irish commercial real estate portfolio.

The Irish bank, which is 99.2 per cent owned by the State, has also made a number of “behavioural commitments”. These include a commitment to deliver on mortgage treatments for non-performing residential home loans that are broadly in line with those already set out by the Central Bank.

PTSB has also agreed to limit the maximum size of its balance sheet, not to use State aid for marketing and advertising purposes and to cap the amount it spends on promoting its products each year.

Acquisition

It has agreed not to undertake any acquisitions, to concentrate its activities in Ireland and to limit its holdings in domestic sovereign bonds.

In addition, it has committed that its annual operating expenses will not exceed certain limits, and to allow other financial institutions to communicate directly with some of the group’s customers, including via advertising material.

On dividends, PTSB has agreed to limit distributions until the the €400 million in contingent capital notes held by the State are converted, redeemed or repurchased. It will not pay dividends in “circumstances which will compromise the ability of the group to meet its commitments” under the restructuring plan.

PTSB chief executive Jeremy Masding described the commission's decision as a "significant milestone" for the bank, adding it was "fully consistent" with its business plan.

“We are very confident that we can achieve the various objectives and targets set out and return the group to being a profitable, relevant and competitive force in the retail banking market in Ireland.”

Commissioner Margrethe Vestager, who is in charge of EU competition policy, said the plan set out a "clear path" for PTSB's long-term viability without further state support.

The commission said this version of the plan set out a “credible strategy” to make PTSB profitable.