Red ink for Permanent TSB despite underlying profit

Bank ‘still heavily loss-making’, according to chief executive

Permanent TSB is benefiting from declining impairment charges, as charges on the bank’s Irish residential mortgages book fell from €338m in 2013 to €114m in the first six months of 2014.

Wed, Aug 20, 2014, 01:00

In keeping with the other Irish banks, Permanent TSB’s half-year results yesterday showed improving trends on a number of fronts.

Income was up, payroll costs were down, its net interest margin improved, a lower impairment charge (€149 million versus €430 million a year earlier) was recorded, and it reported a 14 per cent decline in the number of customers in mortgage arrears when compared with the end of 2013.

However, unlike AIB, Bank of Ireland and Ulster Bank, who were all able to report a clean return to profitability, Permanent is still operating in the red.

Both the bank and Minister for Finance Michael Noonan were keen to highlight that the group made an underlying profit of €4 million in the six months to the end of June but this was before non-recurring items and impairment charges.

Once these were factored into the calculations it had recorded a loss of €171 million. Add a tax charge of €29 million and the group’s total loss for the six-month period was a hefty €200 million.

It’s a long way from the €1.5 billion deficit recorded in full year 2011 and the near €1 billion losses in each of the two following years. But it is “still heavily loss- making”, according to chief executive Jeremy Masding yesterday. A return to profit for the group as a whole isn’t expected until 2017.

Material uncertainties Permanent also continues to await approval from the European Commission for its restructuring plan, which was first submitted in 2012. Masding expects this in due course but it was cited in the bank’s 70- page interim report as one of “two material uncertainties facing the group” – the other being its reliance on European Central Bank system funding – that cast doubt on its ability to continue as a going concern. While this is a technical warning to comply with accounting rules, it also highlights the fact that Permanent is not yet able to stand on its own two feet. Without the State standing behind it, it would go the way of the dinosaur.

Masding deserves credit for Permanent’s improvements. When he joined the bank in January 2012 there was considerable doubt as to whether Permanent had a viable future when decoupled from Irish Life, and, to all intents and purposes, it was closed to new business.

He spent his first agm fending off shareholder anger over its standard variable mortgage rate, which was significantly higher than those of its competitors at that time, while the backlog of mortgage arrears mounted by the day.

On his watch Permanent has put in place perhaps the most impressive arrears collections unit in the market. While this problem is far from resolved you get the impression it is well in hand. About 24,000 sustainable solutions have been agreed with its arrears customers and the redefault rate – those who default on the revised terms of their mortgages – is just 8 per cent.

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