Centerbridge Partners, a New York private equity house with a taste for European banks, didn’t take long to go back on the prowl after abandoning a deal early last year to buy a small Italian lender, Banca Progetto, over its alleged mafia-linked lending.
Its search ended up in Dublin, with the firm arranging meetings late last summer with executives from PTSB and officials from the Department of Finance to signal an interest in the 57.5 per cent State-owned bank, according to sources.
PTSB had attracted tyre-kickers sporadically over the years since its crisis-era bailout. But the approach from a credible firm that bought another Italian lender in 2015 and was part of a group that acquired German property specialist Aareal Bank three years ago – and rumours of interest elsewhere – prompted the board to put the bank on the market in October.
At 11.04am on Tuesday, a short stock exchange announcement – choreographed to run after a nod from a Cabinet meeting in Dublin – declared that Austrian banking group Bawag had won the auction, agreeing to buy PTSB for almost €1.62 billion in cash. A longer document published a minute later said that two final bidders had been battling it out in the final stages, but that Bawag’s offer was “at a higher value than that of other bidders”.
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Centerbridge and Californian investment firm Sixth Street Partners, which had joined forces after each being among six parties to make initial proposals for PTSB in early February, were behind the other bid, The Irish Times has established. A spokeswoman for Centerbridge declined to comment.
“We are confident that Bawag brings the ambition, capability and capital required to support the next phase of PTSB growth, while strengthening competition and choice for customers in the Irish banking market,” PTSB chief executive Eamonn Crowley said on a call with journalists.
The hope is that Bawag, with a balance sheet almost 2½ times PTSB’s €30.5 billion of assets, will finally make the bank a real challenger to AIB and Bank of Ireland, broaden its product offering (mortgages still account for 93 per cent of loans) and speed up the modernisation of its technology.
The arrival of Bawag – together with UK digital bank Monzo’s Irish launch this week, Spain’s Bankinter turning its Avant Money into an official Irish branch last year, and neobank Revolut’s plans to enter the mortgages market here – should boost competition. It follows the exits in recent years of Ulster Bank and KBC Bank Ireland, the last foreign-owned banks from the Celtic Tiger era.
Bawag has signalled it “does not currently intend to make any material changes” to PTSB’s 98-strong branch network, pledged to keep it as a stand-alone bank based in Dublin and committed to investing “meaningfully” in technology, bringing new products to households and businesses. The commitment around branches and the Irish headquarters is only locked in for two years by the transaction agreement.
Bawag also plans to carry out a “detailed review” of product lines it has on offer in Austria, Germany and the Netherlands with a view to rolling them out in Ireland. This will include household energy-efficiency loans, small-business and self-employed banking products, investment brokerage services, and financing of residential and commercial real estate development and investment, according to the document.
However, a surge of as much as 9 per cent in Bawag’s market value since the announcement, to a record of just over €12 billion, has led many to conclude Vienna is the real winner.
Analysts and industry executives see the Austrians accelerating cost-cutting – including jobs and, ultimately, branches. That is even though Bawag chief executive Anas Abuzaakouk said he sees the network “as a real asset”, if one that would likely evolve from being transactions-based towards advice. Bawag’s deputy chief executive Sat Shah told reporters on a call that it was “a little premature” to talk about potential job reductions.
Deutsche Bank analysts Marlene Eibensteiner and Robert Nobel said in a report that they expected the bank would have achieved closer to €3.20 per share, or €1.75 billion in total.
Goodbody Stockbrokers’ Denis McGoldrick described the agreement as “a disappointing outcome”, set at an 18 per cent discount to the value of tangible assets. As did John Cronin, managing director of Seapoint Insights, an independent research consultancy.
“It raises questions in relation to why the decision was taken by the Government to support a transaction at such an early stage in PTSB’s recovery story,” said Cronin. “However, it does achieve a successful exit from the State’s investments in the banking sector and Bawag is a committed long-term owner.”
[ How AIB, once worth less than its art collection, came back from the brinkOpens in new window ]
UBS analyst Mate Nemes said that Bawag, with its reputation of being a conservative lender and its focus on digital banking, “appears culturally very different to an Irish branch-heavy franchise with an emphasis on volume growth”.
Johnny de la Hey, founder of 0.7 per cent PTSB shareholder Hunters Moon Capital, told the Business Post the price was “disappointing for shareholders”.
Still, while the agreed price is 9.5 per cent off the stock’s peak in early March, it marks a 26 per cent premium to where the stock was changing hands before the for-sale sign was hoisted.
Shares in PTSB fell as much as 5 per cent to €2.86 on the day the deal was announced. Traders put this partly down to some concerns about it securing the necessary 75 per cent support from shareholders, even if Bawag executives said this risk was “limited”.
Some investors have also decided to take money off the table now, mindful that they will have to wait until the end of this year or early 2027 for the sale to close, they added. US hedge fund Sessa Capital, which had built up a 2.1 per cent stake late last year as the sale was in progress, sold its entire holding on Tuesday. The firm’s president did not respond to a call to his office.
The final price – which will yield €931 million for the Government – was agreed late in the day, according to sources.
PTSB’s board got word through to Minister for Finance Simon Harris’s officials on Sunday morning that it was ready to unanimously recommend it accept a €2.95-a-share offer from Bawag. The Austrian group had pointed out to PTSB’s financial adviser, Goldman Sachs, that its proposal had remained the same from an initial bidding round in early February – even though European banking stocks have been volatile since the outbreak of the Iran war.
Harris was largely preoccupied that day with an emergency Cabinet meeting about the fuel crisis after days of blockades and protests over heightened energy costs resulting from the war. Still, when he found time to discuss PTSB with Des Carville, head of his department’s bank shareholding and financial advisory division, he gave the go-ahead for the official to phone Abuzaakouk directly to try to squeeze more out of the deal, the sources said. Bawag would nudge its offer up 2 cents – or €11 million.
Still, Opposition parties are far from impressed.
“There has been little or no public interrogation of this process,” said Ged Nash, the Labour Party’s finance spokesman. “Neither has there been a clear explanation prior to the sale on the timing of the original Government decision to appoint advisers to seek a buyer, and why a sale needs to happen now.”
Sinn Féin’s finance spokesman Pearse Doherty said it would have been better for the State to retain a majority share of PTSB as part of efforts to turn it into a “third pillar of Irish banking”.
“With these banks going into completely private ownership you have a situation which they will serve only the interest of their shareholders,” he said.
[ Bawag: what can Irish consumers expect from PTSB’s new owner?Opens in new window ]
PTSB, formed through the merger in 2001 of Irish Permanent and TSB Bank, traces its roots to five trustee savings banks set up between 1816 and 1820, including one in Dublin founded by members of the Guinness, Bewley and Jameson families.
Irish Permanent was already part of the Irish Life & Permanent group at the time of that deal, following its 1999 tie-up with the State’s largest life and pensions group Irish Life.
For people familiar with the struggle then-minister for finance Michael Noonan faced in persuading Ireland’s international bailout overseers that PTSB was salvageable after its €4 billion taxpayer rescue in 2011, this week’s deal marks a significant milestone.
“It’s an incredible result,” said one. “Noonan is the unsung hero in all of this. He said ‘no’ when he was getting real pressure from elements of the troika to have the bank wound down or merged with one of the other remaining banks.”
His resistance followed the hiring in 2012 of Welsh banker Jeremy Masding as PTSB chief executive, with the explicit task of working out if the bank had a future. Masding concluded a wind-down would lead to bigger losses and remove another competitor at a time when overseas lenders were fleeing the scene of the biggest banking crash in modern European history.
While PTSB initially avoided large transfers of toxic loans to the National Asset Management Agency due to its limited property development exposure, it nevertheless needed a bailout as rising mortgage arrears and heavy reliance on costly market funding exerted severe pressure on its balance sheet.
Noonan carved out the Irish Life part of the business and sold it for €1.3 billion to Canada’s Great-West Lifeco in 2013 to recoup part of the bill.
Masding managed, in 2015, to secure EU approval for a restructuring plan and he returned PTSB to the main Dublin and London stock markets. PTSB completed the sale of its €6.5 billion UK loan book – as required by Brussels – the following year even when the Brexit vote was seen by many to have blown its chances.
When Crowley joined as chief financial officer in early 2017, he was tasked with resolving an existential threat to the bank: a 28 per cent level of non-performing loans. He would execute the sale of billions of euro of problem loans – without blowing a hole in the group’s balance sheet, as many had feared.
Yet, the more they dealt with PTSB’s immediate challenges, the more they exposed a fundamental weakness. Diminished in scale and burdened by significantly higher regulatory capital demands, the bank was only generating a 3-4 per cent underlying return on shareholders’ equity by the late 2010s, well below the 8–10 per cent range that would point to a healthy bank.
Crowley, who succeeded Masding in 2020, would increase PTSB’s balance sheet by 50 per cent between 2022 and 2023 with an opportunistic purchase of Ulster Bank loans.
[ The Irish Times view on the sale of PTSB: the State finally lets goOpens in new window ]
Interest income was boosted further around the same time as banks globally enjoyed a surge in interest rates.
And he secured regulatory clearance in recent months to ease the risk profile of PTSB’s mortgage book – freeing up some expensive capital and putting it on a more competitive footing against its larger peers – and unveiled its first dividend since 2008.
But a subscale business and relatively high running costs left it with a cost-to-income ratio of 75 per cent last year. AIB and Bank of Ireland reported annual cost ratios of 44 per cent and 49 per cent respectively last year, while Bawag’s was 36.1 per cent.
PTSB last month set a target for its ratio to fall below 60 per cent by the end of 2028. Bawag, which went through major restructuring under US investment group Cerberus’s control between 2006 and 2017, is expected to set more ambitious objectives. Abuzaakouk previously worked for Cerberus, which is best known in Ireland for acquiring billions of euro of problem loans following the crash, and was heavily involved in Bawag’s transformation before taking charge nine years ago.
UBS’s Nemes says that PTSB has seen a deterioration in its cost efficiency since 2017, in contrast to improvements seen across Irish and European peers. “While costs to deposits, assets and loans have risen for PTSB, they have generally declined for competitors, highlighting the bank’s operational lag and the opportunity for turnaround,” he said.
Bawag, previously best known in Irish financial circles for buying the remnants of Dublin-based Depfa Bank in 2021 and acquiring mortgages start-up MoCo two years later, sees the PTSB deal boosting earnings per share by 20 per cent by 2028. That is without even factoring in potential income growth.
While it is seen reducing PTSB’s 2,900-strong workforce in the near term, it has promised to “engage constructively with employee representatives and follow applicable information and consultation obligations in respect of any organisational changes”.
The deal, subject to shareholder approval, will see the Government’s total cash recovery on PTSB’s €4 billion bailout come to about €3.73 billion as it becomes the last of the three surviving banks to return to full private ownership.
This includes money made from share sales, redemption of bailout bonds, interest, guarantee fees and the Irish Life disposal.
Taxpayers will end up recouping €30.7 billion from the three surviving Irish banks on a cash-in, cash-out basis, following their combined €29.3 billion in bailouts.
However, this ignores the interest paid on money borrowed to save the banks, the effects of inflation and the long-term impact of the banking crisis on Irish households, businesses and the wider economy.
Still, a decade on from when many thought PTSB would not survive, it now has the chance to deliver on becoming that much talked-about third banking force here.
