Permanent TSB’s long term viability may be boosted by a merger with another bank, according to official briefing notes for the minister for finance.
"The bank faces challenges which the board and management team are conscious of and are working through," according to the Department of Finance notes, published yesterday, which were prepared for the minister as he resumed his role under the new government.
“There is the possibility of M&A activity to drive value and improve long-term viability for the bank.” This would mean PTSB merging with another institution, or being acquired by one.
The Department warned that any increase in banking levies as a result for Permanent TSB from €27 million a year currently will put at risk commitments with the European Commission as part of the bank's State-aid restructuring plan "and could in a worst case scenario render the bank unviable". The Department is currently carrying out a review of how the levy is charged.
Shares in PTSB, once the State’s largest mortgage lender, have slumped to €2.16 since the government and bank sold shares in the lender into the market a year ago at €4.50, amid concerns over the bank’s margins due to political pressure on lenders to lower mortgage rates.
The ministerial briefing notes also highlight that the first quarter of next year is the nearest available window of opportunity for the government to sell down its 99.8 per cent AIB stake. It again warned that the full sell off could take a considerable period of years. It recommends that the Minister appoints a sales syndicate of investment banks soon, as the next key step in the flotation.
It also said that Bank of Ireland is expected to pay a "modest" dividend in the first half of next year for the first time since the onset of the financial crisis.
Overall, the briefing notes warn that the fall off in bank valuations in the first half of the year has hit the value of the state’s remaining stakes. At the end of 2015, the valuation of the remaining investment in AIB, Bank of Ireland and PTSB was put at €14.79 billion. However the Minister is warned that €3 billion has been knocked off these valuations, with AIB now worth €9 billion to €10 billion below the €11.7 billion estimated last November.
Separately, officials have told Mr Noonan that they are preparing for a decision by the EU on its Apple state-aid case against the government, “which could be soon”.
