IMF warns PTSB return to profit is taking too long but bank not “beyond hope”

Permanent TSB chief executive Jeremy Masding said yesterday that he expects the "good bank" part of the financial institution to make a profit in 2014.

This was in response to negative comments in the International Monetary Fund’s latest mission report on Ireland. It said PTSB’s return to profitability was being “unduly prolonged” and a “timely solution” was needed to “ensure it can contribute to economic recovery” in Ireland.

The IMF noted that PTSB recorded an operating loss of €449 million in the first half of this year, which was “little improved”on the same period of 2012.

In a conference call yesterday, the IMF's mission chief to Ireland, Craig Beaumont, said PTSB was not "beyond hope" but that the its recovery was taking too long.

“The authorities will follow up with further analysis of PTSB’s profitability prospects and funding options but it is necessary to implement a lasting solution for PTSB,” the IMF report added.

'Likely timetable'
In a statement, Mr Masding said the IMF's views "simply reflect" those within the bank on the "likely timetable" for the group's return to profitability.

He this would be a “relatively slow” process due to the “troubled [mortgage] loans” being worked through by its asset management unit (AMU).

“However we expect the ’good bank’ part of the group to be profitable next year,” he added.

PTSB has essentially been broken into three parts. The “good bank” that Mr Masding is referring to is the entity that is now back lending in the market via online and its branch network. It has approved €170 million worth of mortgages so far this year, three times the level of 2012.

The AMU is working through its mortgage loan arrears, while it also has non-core portfolios, including its UK-based buy-to-let business Capital Home Loans.

The group as a whole is not expected to return to the black until 2017.

“The IMF view mirrors our own,” Mr Masding said. “This year we have made a lot of progress in rebuilding the good bank part of Permanent TSB so that it can become a profitable, competitive and important retail bank which plays a constructive role in the economy.”

Restructuring plan
He said the bank hopes to have a decision from the EU on the revised restructuring plan submitted to Brussels in August within the "coming months".

On a possible solution to lowering the cost of funding of the banks’ tracker mortgage portfolios, the IMF said the Irish banks need to be able to “borrow the high-quality balance sheet of a European institution to issue market liabilities at rates that would make their low-yielding assets profitable”.

The IMF said this would be particularly relevant to PTSB given its large tracker mortgage exposure.

Mr Beaumont said no entity had yet been identified for such a move but it could potentially involve an European institution or a private bank.

The IMF said such a scheme would be temporary but could “feed positively” into the bank capital stress tests slated for next year while also providing the necessary lending needed for the revival of domestic demand.

The IMF also said it would be “desirable” for a direct bank recapitalisation backstop arrangement via the European Stability Mechanism to be made available during next year’s bank capital stress tests. It said such a facility could “protect market confidence”.