PTSB given go-ahead to raise additional capital

Minister for Finance Michael Noonan said if Permanent TSB, the 99.2 per cent government-owned lender, needs to raise capital after European stress tests this month, it can do so in the markets and not upset State finances.

“Permanent TSB is strong, very well managed and becoming profitable again,” Noonan told reporters in Dublin during questioning yesterday on the nation’s 2015 budget.

“If they require extra capital, they’re strong enough to get the small amounts of capital they require in the markets, so we don’t see any risk to taxpayers.”

Permanent TSB, the smallest of Ireland's three surviving bailed-out lenders, is most at risk of failing European Central Bank stress tests this month, according to Merrion Capital and analysts including Ross Abercromby with debt ratings firm DBRS.

Mr Noonan said he has "a fair idea" of how the assessment is going and that the other two lenders, Bank of Ireland and Allied Irish Banks, "are very secure in capital terms."

Mr Noonan's comments "may raise speculation that the government is readying the market ahead of PTSB struggling the stress tests," Eamonn Hughes, an analyst with Goodbody Stockbrokers.

"We are more intrigued by the comments in relation to AIB and BoI, which on the face of it should be supportive. Our base case is that both pass the stress tests without the need for additional capital."

The Government acquired its holding in Permanent TSB after a €4 billionbailout in 2011 and plans to return the bank to private ownership.

The Irish state holds €400 million of contingent convertible notes, or CoCos, in the bank, which convert automatically into equity if the core Tier 1 ratio, a measure of financial strength to absorb unexpected losses, falls below 8.25 per cent.

Banks must show they hold common equity Tier 1 capital valued at 8 per cent of risk-weighted assets for base case and 5.5 per cent for the adverse scenario of the ECB stress tests.

Permanent TSB’s common equity Tier 1 capital ratio fell to 12.7 per cent at the end of June from 13.4 per cent in December as it posted an interim loss.

The bank has said it doesn’t expect to post a profit until 2017.

Bank of Ireland’s ratio rose 90 basis points to 13.2 per cent and AIB’s increased to 16.1 per cent from 15 per cent as they returned to underlying profit for the first time since 2008.

The Government, which doesn’t place any value on its Permanent TSB shareholding, could convert the CoCo notes into equity as a first line of defense if the bank needs more capital, Davy said recently.

"The bank could then raise additional hybrid capital to support total capital," Goodbody's Hughes said.

Any move by Mr Noonan to sell shares in Permanent TSB "is likely to dilute the government's economic ownership, reducing the potential to recoup" the bank's remaining €2.7 billion of state aid, Ciaran Callaghan, an analyst with Merrion Capital, said.

Permanent TSB is alone among Ireland's three surviving rescued banks not to have a restructuring plan approved by the European Union.

Bloomberg