Austrian bank Bawag, hotly tipped as a bidder for PTSB, would most likely fund a potential offer through cash and shares, according to investment bank UBS.
This would complicate matters for the Government, which owns 57 per cent of PTSB, and is seeking to extricate itself from banks, more than a decade and a half after bailing out the sector.
UBS analysts use a €1.83 billion potential bid price in a report analysing a possible deal – implying an offer of about €3.35 per share. That is about 11 per cent higher than PTSB’s current share price and 44 per cent above where it was trading before PTSB announced in late October that it was putting itself up for sale.
The report highlights that Bawag could generate about €288 million of capital through an accounting manoeuvre on closing a deal. That is because the notional bid price would be at a discount to PTSB’s tangible equity value – leaving scope for a so-called negative goodwill, or badwill, gain.
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PTSB employed such an accounting treatment – generating €362 million of capital – in 2023 as it purchased loans from Ulster Bank at a discount to their fair value.
UBS also highlighted the potential for PTSB to free up about €230 million of capital as it concludes talks in the coming months with the Central Bank on reducing the risk profile of its mortgage loan book for regulatory capital purposes. PTSB has a much higher level of so-called risk-weighted assets (RWAs) relative to its loan assets than AIB, Bank of Ireland and the wider European banking sector.
However, industry observes say shareholders in PTSB – led by the State – would want to reap the benefits from the capital relief, leading to a higher price expectation for the bank.
Bawag is known to be interested in pursuing a deal with PTSB, having bought Irish mortgages start-up Moco in 2023 and being reported last week to be in exclusive talks to buy Finance Ireland, a nonbank provider of car, commercial property, agri- and small-business loans, for as much as €300 million.
Industry sources say the PTSB process has also attracted several international private equity firms as PTSB and its advisers in Goldman Sachs seek to secure firm expressions of interest by the end of the month.
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Lone Star and Centerbridge Partners are expected to bid. JC Flowers, Apollo, Cerberus and Blackstone are also among US private equity firms that have taken controlling stakes in European banks since the financial crisis.
The UBS note highlighted the need for a ratcheting up of cost-cutting at PTSB. Its running expenses for last year are estimated to amount to more than 75 per cent of total income – compared to figures below 50 per cent at AIB and Bank of Ireland. PTSB also has one of the highest cost bases among European banks relative to total assets, the analysts said.
In the event Bawag wins the process for PTSB, UBS sees the potential for the Austrian group to suspend share buybacks to help finance the deal. It sees the Vienna-based lender returning €1.1 billion to investors through stock repurchases over the next three years.
Using new Bawag shares to help fund a deal would lead to a complicated situation of the Irish Government ending up with a stake in a foreign-owned bank. However, some observers say this could allow Irish taxpayers to share some of the upside from an earnings-boosting deal – and counter claims of PTSB being sold on the cheap.
