Cantillon: dark clouds still hanging over PTSB

What a difference a year makes in Irish banking.

Twelve months ago Permanent TSB and the government completed a €500 million share sale in the bank at a jaw-dropping top-of-the-range price of €4.50 a share – for a loss-making bank.

Within weeks of the deal investors could see the dark clouds gathering as Minister for Finance Michael Noonan started squeezing banks to cut their mortgage costs.

The bad news has kept coming ever since, what with the moribund mortgage market and the bank’s difficulty in selling the remainder of its UK mortgage assets in a country gripped by fear of Brexit.

PTSB's stock suffered a particular sell-off in recent weeks as the shaky new Fine Gael-led minority government, held up by a group of Independents, vowed to keep up the pressure on home loan rates even though it opposes Fianna Fáil's Bill that would give the Central Bank the power to regulate borrowing costs.

And that’s not to mention the rising cost of banking regulation.

So it was of little surprise when Davy analyst Emer Lang yesterday said PTSB's profitability in 2018 is set to come in at a little over a third of the target set by management a year ago.

In a note to clientsshe said she now sees PTSB’s 2018 return on equity coming in at 3.7 per cent. This compares to her 8.4 per cent estimate 12 months ago – and the bank’s own 10 per cent target.

Lang’s calculations points to a €1.43 base valuation on the stock, assuming the bank ends up writing back just €200 million from its stock of €2.5 billion of loan loss provisions at the end of 2015.

This rises to €2.23 if the lender, led by chief executive Jeremy Masding, ends up freeing up a further €500 of provisions.

With PTSB’s stock having rallied 6.4 per cent yesterday to €2 – albeit still 55 per cent off the price of last year’s share sale – beleaguered investors will be hoping Lang has at least erected a support floor for the stock.