Six possible Irish bank tie-ups reviewed by Deutsche Bank

Deal involving Permanent TSB and KBC Ireland most likely, analyst says

Irish banks’ costs remain “stubbornly high”, according to a Deutsche Bank equities analyst. Photograph: Bryan O’Brien / The Irish Times

Irish banks’ costs remain “stubbornly high”, according to a Deutsche Bank equities analyst. Photograph: Bryan O’Brien / The Irish Times

 

Following eight years of shrinking back their loan books, Irish banks’ costs remain “stubbornly high”, according to Deutsche Bank equities analyst David Lock.

He’s come up with six potential merger and acquisition deals that could prompt cost-cutting and lowering of deposit pricing in the sector:

1. KBC Group buys Permanent TSB (PTSB)

2. PTSB buys KBC Ireland

3. Ulster Bank buys PTSB

4. Ulster Bank buys KBC

5. Ulster Bank buys PTSB and KBC Ireland

6. Third party buys PTSB and KBC Ireland

Deutsche Bank concludes there are no obvious options, with all six have drawbacks and hurdles to clear, including:

1. The fact that PTSB is in the middle of a State-aid restructuring plan

2. Ulster Bank’s owner, Royal Bank of Scotland (RBS), is in the middle of negotiating a settlement with the US department of justice (DoJ) over claims it mis-sold mortgage securities in the run up to the financial crisis

3. RBS is trying to sell its Williams & Glyn (W&G) unit in the UK

“On balance, a purchase of PTSB and KBC by a non-Irish entity, or the purchase of PTSB by KBC appear to be the most likely options in the near term,” Mr Lock says.

“Longer term, and post-DoJ settlement/W&G disposal, optionality around Ulster Bank increases. In the meantime, we expect management teams to focus on further cost restructuring.”