The chief executive of Permanent TSB (PTSB), which has not paid dividends shareholders since before the financial crisis, said the bank is still "years away" from returning to payouts, as it seeks to build sustainable profits after taking over a large part of Ulster Bank's loans.
Speaking to analysts after PTSB reported on Wednesday that its net loss narrowed by 90 per cent last year to €20 million, Eamonn Crowley said the bank will have to demonstrate sufficiently high sustainable earnings before regulators lift a long-standing “dividend blocker” on the company.
“I would suggest that’s a number of years away,” he said. “We’ll have to prove our profit sustainability over the next number of years in order to get there. But I believe that once we get there, we’ll have a bank that is very attractive.”
PTSB, in which Irish taxpayers hold a 75 per cent stake, is alone among the State’s three surviving bailed-out banks in not having returned to paying dividends since the 2008 crash, having consistently delivered sub-par profit returns as its balance sheet shrank dramatically over the course of more than a decade.
However, Mr Crowley’s agreement last year to buy an estimated €6.8 billion of mortgages and small business loans from Ulster Bank, as the latter exits the market, will grow PTSB’s loan book by over 40 per cent, subject to approval from the competition watchdog.
PTSB forecasts that this will ultimately boost the bank’s return on shareholders’ equity to 9 per cent by 2026 or 2027, compared to the 2-3 per cent that the bank had been delivering in the years leading up to the Covid-19 crisis. Analysts and regulators see a ratio of 8-10 per cent as a sign of a healthy bank.
The bank reported a €20 million net profit for 2021, compared with a €162 million shortfall for the previous year, which had been hit by a €155 million charge for potential bad loans as a result of the pandemic. Some €1 million of these were freed up last year, the bank said on Wednesday as it reported its annual results.
Still, the profit figure was depressed as PTSB booked €38 million of net exceptional charges, including €28 million of advisory costs in relation to its planned acquisition of loans and 25 branches from Ulster Bank.
Interim chief financial officer Declan Norgrove said the bank expects to take a €130 million charge this year to cover the costs of technically taking over Ulster Bank assets and integrating them.
Accounting gain
However, Mr Crowley clarified to reporters that this will be more than offset by an accounting gain that PTSB expects to make when the deal is completed later this year. As PTSB is taking over the Ulster Bank assets at a discount to their fair value, it will able to book the difference as “badwill”, or what’s sometimes referred to as negative goodwill.
The deal will also see Ulster Bank’s parent, NatWest, take a 16.7 per cent stake in PTSB as part payment for the assets being sold. This will reduce the Irish Government’s holding to 62.5 per cent.
Some 450 Ulster Bank employees will move to PTSB under the transaction, increasing the latter’s annual staff bill by €50 million, executives said on Wednesday.
PTSB’s new lending jumped 44 per cent last year to €2.1 billion, driven by mortgages. Its share of home loan drawdowns rose to 17.8 per cent from 15.3 per cent a year earlier and a low a decade earlier of about 2 per cent.
New lending in its fledgling small- to medium-sized (SME) loan business doubled to €98 million. The SME book expanded by a net 38 per cent to €225 million and is set to triple in size as a result of the Ulster Bank deal.
PTSB’s net interest income declined by 8 per cent last year to €313 million, driven by the sale of loan portfolios, the impact of reducing certain mortgage rates and also having to pay the European Central Bank (ECB) a rate of 0.5 per cent - or what’s known as a negative rate – for about €2 billion of excess cash it parked with the ECB.
Irish banks are generally negatively affected by the fact that they hold too much money by way of customer deposits – compounded by high household savings during the pandemic. However, PTSB is alone among the three remaining lenders in the market in looking to build up its deposits base, in order to help fund the Ulster Bank deal.
