Down in the polls and reeling from the bruising presidential election, the Government appears to have turned to the banks to score some quick wins.
On Friday, AIB and the Department of Finance announced that the bank had repurchased stock warrants from the State for €390 million, cutting the final shortfall on AIB’s €20.8 billion bailout recovery to about €600 million.
Minister for Finance Paschal Donohoe acquired the instruments at the time of AIB’s initial public offering in 2017, entitling him to buy back nearly 10 per cent of the bank if the stock took off after the deal – avoiding potential embarrassment on Merrion Street.
There was little need for anyone to think about the warrants for much of the time since then, as AIB shares languished well below the strike price – until earlier this year, when the warrants crept into the money as the bank’s shares began a surge that has seen them advance by almost 50 per cent.
The repurchase and cancellation of the stock warrants had been expected for some time, having been flagged by AIB earlier this year.
But what caught the stock market off guard was news on Thursday morning that PTSB, in which Donohoe continues to hold a 57 per cent stake on taxpayers’ behalf, has put itself up for sale. PTSB’s 23.4 per cent share price jump that day tells its own story.
A deal will finally allow the Government to say it has recovered, in the round, the €29.4 billion pumped into the three surviving banks during the financial crisis.
PTSB’s board, led by chairwoman Julie O’Neill, has technically decided to raise the “for sale” sign. But it wouldn’t have happened without Donohoe’s say-so.
There is an obvious play for a buyer to make money out of PTSB by slashing costs in the State’s most inefficient, overstaffed bank. The obvious suitor would be a private equity type, according to analysts.
While PTSB is on track to cut 300 jobs this year – equivalent to almost 9 per cent of the starting workforce – its running costs will still equate to more than 75 per cent of total income, analysts say. AIB and Bank of Ireland are both below 50 per cent.
PTSB aims to bring its cost-to-income ratio down to 62 per cent by 2027 – while the other two stay under 50 per cent, the standard benchmark for most European retail banks.
For Eamonn Crowley, chief executive of PTSB, the primary duty is to get the best price for shareholders. This is a listed company, after all.
But that cannot be the only objective of the Government. It must use its majority stake to extract something bigger: a buyer with real vision to turn PTSB into a proper third force in banking. This phrase has been bandied about ever since the financial crisis. But the objective remains elusive.
And it is needed now more than ever, with Ulster Bank and KBC Bank Ireland – the last foreign banks standing after the crash – no longer with us. The nonbank lenders and fintechs that have emerged in recent years are welcome, but their products are generally limited.
PTSB, in fairness, has managed to rebuild itself into a real force in mortgage lending. It has a 20 per cent share of the market, almost double what it was a decade ago, even as it remains at a significant competitive disadvantage to its larger peers on two fronts.
It doesn’t have anywhere near their levels of idle deposits sitting with the Central Bank of Ireland – earning interest and subsidising home loans. PTSB also has to set aside much higher levels of expensive capital against mortgages than AIB and Bank of Ireland.
PTSB submitted new mortgage-risk models to the central bank earlier this year for approval. While regulators have yet to sign off on the capital relief plan, the outcome should be known by the time final bids come in next year.
Donohoe must ensure that any buyer – financial or strategic – has real ambition for PTSB. While it has made inroads into SME lending in recent years, this could be accelerated with a strong balance sheet behind it. It could also get into commercial, corporate and residential development lending. Maybe even wealth management.
The sale is occurring against the pickup of consolidation this year in European banking, too. Italian banks have been in the vanguard, but have been concerned mainly with deal making among themselves.
Former basket case, Monte dei Paschi di Siena, managed to secure most of Milan’s Mediobanca in September. Mediobanca itself had tried its hand at being a protagonist, launching a bid in April to buy Banca Generali – before its own shareholders rejected the plan in August. Elsewhere, Modena-based BPER Banca took control of Banca Popolare di Sondrio in June.
There have been cross-border deals too, many with an Irish link.
US private equity giant Lone Star dropped a plan to float Novo Banco, the Portuguese lender led by former AIB chief financial officer Mark Bourke, during the summer when it secured a more attractive offer from French banking group BPCE for its 75 per cent stake.
Tom O’Brien of Nephin Energy on the importance of gas, the potential of biomethane, and whether our energy bills will come down
And Austria’s Erste Group struck a deal to buy a 49 per cent stake in Spanish banking giant Santander’s Polish unit during the summer, too.
Crowley would have had more than a passing interest in that transaction. Santander Bank Polska was once AIB’s Polish banking unit, Bank Zachodni WBK (BZWBK). Crowley, a senior AIB executive at the time, actually managed the sale of BZWBK to Santander in 2010.
Meanwhile, Austria’s Bawag – which bought the remnants of failed Dublin-based lender Depfa Bank in 2021 and Irish mortgage start-up Moco two years later – purchased a German consumer bank earlier this year from Barclays’ Irish subsidiary.
Bawag will undoubtedly take a look at PTSB. As will Bankinter, owner of Avant Money, even if its executives recently played down speculation of a potential deal.
It’s believed that chatter about potential bid interest elsewhere spurred the decision for PTSB to hire Goldman Sachs to launch a formal process.
Crowley said this week that the bank has not fielded any actual approaches. But would he or Donohoe have fired the starting gun without sensing genuine interest in the wings?
