Permanent TSB's capital shortfall arising from European Central Bank stress tests will be between €800 million and €1 billion, The Irish Times has learned.
PTSB, which is 99.2 per cent owned by the State, will fail the adverse scenario case of the stress test when the results are published on Sunday.
PTSB will have two weeks to submit a plan to the new Single Supervisory Mechanism, which assumes regulatory oversight for the euro zone on November 4th, outlining how it intends to plug the hole in its capital buffer. It will have until the end of July next year to put the funding in place.
PTSB will not have to raise the full amount identified by the ECB on Sunday. The figure announced by the ECB will be a gross number. PTSB will then be able to net off up to €400 million worth of contingent capital notes, or CoCos as they are better known, held by the State as part of the bank’s €2.7 billion bailout.
Property market
In addition, it will likely be allowed to factor into its plan actions that it has taken this year, such as the sale of its Springboard sub-prime mortgage book, along with provision writebacks that reflect the upturn in the Irish economy and property market.
PTSB will seek to raise whatever capital it needs from the markets, with Deutsche Bank engaged to seek out potential investors. The State is another possible source of funding but Minister for Finance Michael Noonan last week said he expected PTSB to raise whatever funding it needs from private sources.
As part of the asset quality review undertaken for the comprehensive assessment exercise by the ECB and the European Banking Authority, some 1,100 PTSB debtor files were assessed, along with 4,400 collateral items.
As PTSB has not yet received approval for its restructuring plan its stress test was done on the basis of a static balance sheet based on year-end 2013.
This meant that in applying the stress scenarios into the future the bank was required to maintain the same business mix and asset and liability profile in terms of quality and maturity that it had at the end of last year.
By comparison, the dynamic balance sheet calculations allowed certain exemptions from the static rules to reflect the terms of the restructuring plans agreed with the commission. This applies to varying degrees to Bank of Ireland and AIB.
