A merger between Permanent TSB and another financial institution is not appropriate at this stage, but the bank must make "further tough decisions" over the coming years, its chairman said on Tuesday.
Robert Elliott, chairman of the 75 per cent State-owned lender, said the board recognised that returns from its business did not yet meet the bank's cost of capital.
“That remains our goal and will require further tough decisions over the coming years,” he told its annual general meeting in Dublin.
The lender must reduce its ratio of non-performing loans below the current level of 10 per cent, “address issues in our pricing model for existing mortgage customers” and lower its high cost base, he said.
Speaking after the meeting, Permanent TSB chief executive Jeremy Masding said a tie-up with another bank was not on his agenda.
“One never does a deal for a deal’s sake,” he said. “We now need over the next couple of years to focus on growing the bank so that I know I can look the shareholders in the eye, including the minister [for finance], to say, you know, this thing is motoring in an organic sense. It’s only at that stage that I believe that doing a deal would be appropriate.”
Speculation that Permanent TSB might not remain independent has bloomed since last year, when then chair of the ECB's banking supervision arm, Danièle Nouy, suggested to the Department of Finance that a merger with Royal Bank of Scotland's Ulster Bank unit would bolster the health of the Irish financial system.
Mr Masding said there was “a disconnect” between the “intrinsic value” of Permanent TSB’s shares and the market value, with the bank’s current share price not reflecting its profit outlook and progress made in reducing its ratio of non-performing loans.
“I have zero doubt that we’ll continue to surprise the market in terms of our commercial performance,” he said.
On the prospect of “tough decisions” raised by the chairman in his address, he referred to a need to examine both its cost base and how it generates revenue. “All decisions are tough,” he said.
The Central Bank of Ireland's enforcement investigation into the lender's role in the tracker mortgage scandal is "nearer the end than the beginning," Mr Masding added.
This is expected to result in a “significant” fine, Mr Elliott confirmed to shareholders. “We have apologised for the errors that were made and the harm that resulted. I repeat that apology again today.”
In response to criticism from a shareholder who said the bank had failed to address a “disgraceful” attitude to customers, Mr Elliott said there had been “a bad culture”, but that the bank was recovering from it and was determined “not to go back to excessive risk-taking”.
Another shareholder queried why she had been sent a dividend cheque for 18 cent, asking why the sums due had not been let accumulate “until they reach at least a euro”.
Company secretary Conor Ryan agreed that this was inefficient, but said Permanent TSB had received legal advice to send out the small sums owed, which related to a type of share class that the lender was closing down.
This meant some shareholders were advised that it might cost more to cash the cheque than the actual value of the cheque, he admitted.
The lender is restricted at present from paying normal dividends, but when it does resume doing so, they will be paid electronically, Mr Ryan said.