State stake in PTSB could drop to 29% if market backs deal with Ulster Bank, report says
The government could see the state’s stake in Permanent TSB (PTSB) increase from 75 percent to 29 percent if it relied on stock market investors to provide the bank with the capital needed to purchase part of the portfolio. Ulster Bank loans, according to a Deutsche Banking Analysis.
The PTSB would most likely be interested in € 9 billion on Ulster Bank’s € 20 billion loan portfolio, including untracked mortgages and small business and consumer loans, the company said. Deutsche Bank analyst Robert Noble in a report distributed to clients on Wednesday. This is equivalent to 60% of the size of the PTSB loan portfolio.
The capital reserves estimated at 550 million euros that the PTSB would need to raise to support the acquisition would eclipse its own market value of 485 million euros.
PTSB and AIB confirmed on February 19 that they were in talks to buy loans from Ulster Bank, after UK lender’s parent company NatWest confirmed it was pulling out of the Republic over several years.
AIB has enough excess capital to purchase the € 4 billion in business and small business loans from Ulster Bank that it plans to buy. Finance Minister Paschal Donohoe said he should carefully consider any PTSB proposal in this regard that would require public funds.
Deutsche said it would be “a tall order” to ask the government to provide more fairness to the PTSB “politically or under EU state aid rules. “. On the other hand, with PTSB shares currently trading at just 30 percent of the estimated value of its assets, a sale of shares at current levels to private investors only would see them acquire shares at a steep discount, diluting strong state participation.
State participation could drop to 29%, according to Deutsche Bank. “Ideally, the government would provide around € 400 million of equity and the rest of the shareholder private,” Mr. Noble said.
The report says an agreement with the PTSB that allows it to select Ulster Bank loans, branches and deposits “could be hugely beneficial”, although it is difficult to make estimates at this point.
“The PTSB suffers from a lack of scale and has limited exposure to the SME market – and a combination with Ulster may solve parts of the problem,” the analyst said, adding that without a deal the PTSB would take five years to build profitability. to provide a 6% return on equity, which is lower than what is considered acceptable by investors.
AIB, meanwhile, could earn a 9.4% return on equity on the Ulster Bank loans it plans to acquire, which is above its 8% medium-term target.
While NatWest’s decision to liquidate Ulster Bank in the Republic is largely designed to get hold of the excess capital from the deal, Deutsche Bank has said it “will take a long time” if the lender fails. finds itself with a low-yielding tracker of 6.8 billion euros. mortgage portfolio and € 1.5 billion in bad debts. He estimates that £ 2.2bn (€ 2.55bn) of excess capital is trapped in Ulster Bank.