Third 'national bank' possible

The Government plans to carve a viable, profitable bank out of State-owned Permanent TSB that could become a “third national bank” by moving troubled loans into an internal bad bank that will be run down over time or moved later into a separate entity.

The plan was announced by the Minister for Finance Michael Noonan at a press conference to mark the end of the sixth quarterly review of Ireland’s bailout programme by the troika of lenders, the European Central Bank, the EU Commission and the International Monetary Fund.

Mr Noonan said the plan would allow unprofitable tracker mortgages and impaired loans at Permanent TSB to be run down over time or moved to a “special purpose vehicle”, including a possible transfer to Irish Bank Resolution Corporation or another vehicle if agreement is reached on a wider restructuring of the banks.

The plan was for Permanent TSB, once the country’s biggest mortgage lender, to continue as a small retail bank focused on providing personal loans and mortgages, he said.

The bank had 644,000 current accounts, 225,000 mortgages, 92 branches and 1,800 staff and had the potential to become a “third national bank” that could compete with the Government’s two so-called “pillar banks”, AIB and Bank of Ireland.

"PTSB has the makings of a sound, profitable retail bank. It has 1,800 people employed with a big branch network. It would be a tragedy if it wasn’t positioned to be a trading, profitable bank when it has that potential," he said.

Permanent TSB in a statement said the plan for the bank would be formalised into a restructuring plan to be submitted to the European Commission by the end of June for approval under state aid rules.

The company said the bank would be split in three, leaving €14.2 billion in the viable part of the bank, moving €12.5 billion into an “asset management unit” or internal bad bank and leaving Permanent TSB’s €7.1 billion UK mortgage business as a standalone unit.

Mr Noonan said the UK loan business could be run down over time but that a plan still had to be developed for this part of the business.

John Moran, secretary general of the Department of Finance, told the press conference the intention was that the plan for Permanent TSB would not cost the State any more than the €4 billion the Government is pumping into the bank.

Mr Noonan said that it was still possible that the bad loans put in quarantine in Permanent TSB may still be moved again at a later date to State-owned Irish Bank Resolution Corporation, formerly Anglo Irish Bank, or another entity.

In a joint statement, Permanent TSB chairman Alan Cook and chief executive Jeremy Masding said that there was is “a compelling case that a viable, competitive bank can be created from the Permanent TSB” by separating the bank into business units.“I am just flagging the route,” said Mr Noonan, but he added that no decision had yet been made on moving Permanent TSB’s loans on to IBRC.

The Government effectively nationalised Irish Life and Permanent last year by injecting €2.7 billion of capital required following last year’s stress tests. The remaining €1.3 billion of the bank’s capitalisation bill will be invested by the Government’s purchase of the group’s life assurance business, Irish Life.

Mr Noonan reiterated that it was the Government’s intention to sell Irish Life and he believed that it had increased in value since it was taken into State ownership.

Mr Noonan also confirmed the publication of new personal insolvency legislation to deal with the heavy level of debt in the country has been postponed until the end of June. It was due to have been published by the end of this month under the last set of deadlines set in January under the terms of the bailout programme.

Brendan Howlin, Minister for Public Expenditure and Reform, said that the legislation would be published and debated before the Dail’s summer recess. Describing the bill as “very complex piece of legislation”, he said that it required “careful steering” through constitutional and legal issues.

The two-month delay was due to “some difficulties” that had been overcome for a legislation that was “robust”, “ground-breaking” and “constitutionally reforming”. The troika was concerned about getting the legislation “absolutely right”, he said.