PTSB has capital shortfall of €854.8 million

Permanent TSB has a capital shortfall of € 854.8 million, according to results from the European Central Bank's comprehensive assessments published today.

But AIB, Bank of Ireland, Ulster Bank and Merrill Lynch International, the other Irish institutions examined for these pan-European tests, have all been given a clean bill of health.

PTSB, which is 99.2 per cent owned by the State, failed on the adverse scenario of the ECB’s stress tests. This requires banks to hold 5.5 per cent common equity tier one (CET1) capital. PTSB’s figure was just 0.97 per cent.

PTSB passed the adverse scenario for 2014 and 2015 but failed it for the scenarios applied for 2016. The main reasons for this are that its cost of funding is higher than the other Irish banks while its net interest earnings are more constrained. This is largely due to the fact that about 60 per cent of its mortgages are trackers that track the ECB’s current historic low rates.

The shortfall is a gross figure. PTSB will be allowed to net off certain items and actions that have taken place this year. This includes the €400 million in contingent convertible notes, or CoCos, that are held by the State as part of its bailout. The full or partial conversion of these will form part of the solution.

In addition, PTSB has sold certain assets this year and has also been able to take provision writebacks.

It is understood that PTSB has had initial talks with the Central Bank of Ireland about how it will plug this shortfall and it has until November 9th to submit its formal plan to the Single Supervisory Mechanism, which takes over financial regulation in the euro zone from early next month. The bank will have nine months to raise the capital necessary.

On the adverse scenario, AIB and Ulster Bank had CET1 ratios above 6 per cent while Bank of Ireland and Merrill Lynch, an Irish subsidiary of the US financial group with a banking licence here, were both above 9 per cent.

On the baseline scenario, which requires the banks to hold 8 per cent CET1 through to the end of 2016, all five of the institutions in Ireland passed the test.

PTSB’s ratio was 8.8 per cent, Ulster Bank’s was 10 per cent, Merrill Lynch 10.9 per cent, AIB 12.4 per cent and Bank of Ireland 13.2 per cent.

Deputy governor of the Central Bank of Ireland Cyril Roux said the results show that "progress has been made in recent years to stabilise and rebuild the banking system in Ireland".

“All but one of the Irish institutions meet the adverse and severe criteria applied by the stress test, with a capital requirement only identified in the adverse scenario for PTSB, reflecting ongoing legacy issues which the bank is continuing to work through,” Mr Roux said. “In line with requirements, PTSB will submit a capital plan to meet the shortfall.”

Mr Roux said the results should have “no adverse impact on the day-to-day operations of any of the banks and has no impact on consumers.”