Permanent TSB to acquire Northern Rock deposits

PERMANENT TSB, the banking division of Irish Life and Permanent, has agreed to acquire the €650 million Irish deposit book of nationalised UK bank Northern Rock.

The transaction will improve the bank’s funding position but still leave Permanent TSB as the Irish bank most heavily reliant on wholesale funding. Both banks declined to disclose the price paid for the deposits. The consideration was in line with the cost of similar funding in the market, a source familiar with the issue said.

The sale will result in 17,000 deposit customers moving to Permanent TSB. Irish Life and Permanent, which has been effectively nationalised following a capital injection of €2.7 billion last month, acquired €3.6 billion in deposits from Irish Nationwide Building Society in February.

Loss-making Permanent TSB is seeking to secure a future as a standalone bank by reducing its loan to deposit ratio from 248 per cent at the end of last year – higher than the 180 per cent average across the Irish banks – to a target of 122.5 per cent by the end of 2013, primarily through the sale of loans.

It is understood the ratio was about 230 per cent before the Northern Rock deal, and if completed and approved by the Minister for Finance this would be reduced by 10 percentage points.

David Guinane, chief executive of Permanent TSB, said the deal showed Permanent TSB could provide “a compelling competitive force in the Irish marketplace” and that it was “an important strategic step for the bank”.

“Having successfully acquired almost €4.25 billion in new deposits as a direct result of these transactions, we’re clearly on the right path,” he said.

Between 20 and 25 staff at Northern Rock’s Dublin office, the bank’s only branch in the Republic of Ireland, will move to Permanent TSB, a spokesman for the UK bank said.

The sale, expected to be completed by the end of the year, will result in Northern Rock exiting the Republic of Ireland market, although the bank will retain its business in Northern Ireland.

Irish Life and Permanent has appointed a corporate finance team from KPMG in London to oversee the sale of the bank’s €7.5 billion UK loan book over the coming two years. The company publishes results for the first half of the year today.

Northern Rock’s online and postal savings branch in Dublin was the scene of customer queues in 2007 following the first run on a UK bank in 150 years.

Northern Rock was the first casualty of the financial crash after it emerged the bank had sought emergency funding from the Bank of England.