The sale of PTSB marks the State’s exit from a banking sector it was forced to nationalise in the wake of the 2008 financial crash. It may also herald an era of renewed competition between Irish banks, something that has unfortunately been conspicuous by its absence during the years of State ownership of the sector.
Much attention is being paid to the price obtained by the Government for its 57.5 per cent stake in PTSB and whether it leaves the taxpayer square on the €64 billion sunk into the broken banks. The consensus is that we broke even when everything is taken into account.
But that is a somewhat pointless exercise. No number can be put on the social and intangible costs of the years of austerity that followed the bank rescue and subsequent bailout. It is equally impossible to calculate the eventual dividend that arose from restoring the State’s finances to stability.
One negative aspect of State ownership of the banking sector has been the imperative to return the banks to profitability. That fostered a virtual duopoly between AIB and Bank of Ireland following the departure of foreign-owned banks. While not an explicit State policy, this reality manifested itself in high margins – the difference between the interest the banks pay savers and what they charge borrowers. These remain among the highest in the eurozone.
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There have been several new entrants in the years since the crash but they have tended to be niche services such as Revolut. The most recent – UK online bank Monzo – announced this week that it will offer free current, savings and business accounts to 100,000 Irish customers currently on a wait list. The appetite for banks like Monzo and Revolut speaks to the pent-up demand for alternative, consumer-focused banking products.
The hope is that PTSB’s new Austrian owners, Bawag, will offer the two big banks some genuine competition in the lending market, particularly in mortgage lending where PTSB is historically strong.
Bawag itself was rescued from bankruptcy in 2006 by a US investment fund, Cerberus. It was turned around by a mixture of aggressive cost-cutting via workforce reductions and a focus on technology. It went on to acquire several other banks and employed the same template, making it now one of the most efficient banks in Europe, measured by its cost to income ratio of 36 per cent. AIB and Bank of Ireland’s cost to income ratios are 44 and 49 per cent respectively.
PTSB’s cost to income is 75 per cent, which gives an indication of what lies ahead for its nationwide network of branches and its 2,900 employees when the new owners take the reins later this year.
