PTSB overcomes ‘existential’ crisis but dividends way off, Investec says

Key challenges facing the mortgage lender include reining in costs

PTSB’s chief executive Jeremy Masding, didn’t rule out further loan sales when he reported full-year results last week.

PTSB’s chief executive Jeremy Masding, didn’t rule out further loan sales when he reported full-year results last week.

 

Permanent TSB (PTSB) last year overcame remaining “existential issues” by offloading €3.4 billion of problem loans, but it has “very limited scope” of returning to paying dividends in the coming years, according to Investec Ireland.

Investec analyst Owen Callan said the bank faces further headwinds, including reining in costs, building its lending margins, and the possibility of the having to book up to €30 million in additional charges as it deals with its remaining €1.7 billion of non-performing loans (NPLs).

The bank’s chief executive, Jeremy Masding, didn’t rule out further loan sales when he reported full-year results last week.

Meanwhile, PTSB will face market and regulatory pressure to hold a minimum common equity Tier 1 capital ratio, an important gauge of a bank’s ability to withstand shock losses, of 13 per cent in future.

That compares to 12.2 per cent at the end of December, though the number will rise to 14 per cent when regulatory approval for the capital treatment of last year’s NPL disposals comes through, according to Mr Callan.

PTSB, which is 75 per cent State owned, cut its NPLs ratio from 28 per cent to 10 per cent as it sold €2.1 billion of soured loans to US private equity group Lone Star and refinanced €1.3 billion of restructured loans in a bond securitisation deal.

The bank had to take a €66 million impairment charge against the loans as a result of the transactions, serving to push down its net profit for 2018.

“We cannot ignore the clear positive trajectory the bank is now demonstrating, but we also need to highlight the headwinds which will limit how fast the recovery phase of the bank continues at, now that the repair phase is reaching conclusion,” said Mr Callan, adding that the bank’s ability to return to paying a dividend “remains constrained into the medium term” by capital hurdles.

PTSB is alone among the four remaining retail banks in the Irish market in not having paid a dividend since the onset of the crisis. Bank of Ireland and AIB have both returned to paying shareholders a dividend in recent years, while Royal Bank of Scotland unit Ulster Bank and KBC Group’s Irish division have each made payments to their parents.

Investec has a ‘buy’ rating and €2 price target on PTSB’s stock, pointing to about 27 per cent upside from its current trading level.