# Permanenttsb - Future of the Bank



## The_Banker (27 Mar 2014)

In light of yesterdays financial results in PTSB I would be interested in gauging peoples opinion on the future of this bank.

The results were not generally disected by the media I think due to the fact that yesterday the media were all over the Shatter/Callinan issues.

While they are still racking up losses on historical loans and having issues with performing loans (i.e. mortgage holders that are not in arrears), due to the fact that they have so many loss making tracker mortgages they do state that they have turned a corner in that they are profitable on new business... and that they are punching above their weight in attracting new current account holders. 

Also, the media seem to be hinting at a possible merger between PTSB and Ulster.. If that was to happen I would think it would have to be agreed at governmental level rather than executive level and as one journalist noted a few weeks back... "just because you tie two rocks together it doesnt mean they will float"...

Is there a future for this bank ? Either stand alone or as part of another entity?


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## Lightning (27 Mar 2014)

PTSB will carry on as a stand-alone entity, merge, be acquired or shut-down. 

There are 2 key factors. The ECB stress tests and the EC approval of the survival plan. 

*Stand-alone entity: *Draghi said this week that some Irish banks may not be viable stand-alone. He was clearly referring to PTSB. PTSB need to pass the ECB stress tests this year. Draghi's comments do not give confidence that they will be able to pass the stress tests as a stand alone entity. 

*Merger or acquisition:* Noonan wants a merger or acquisition of PTSB. RBS have said they want to look into a merger. KBC or an international bank or private equity might be interested. They also might not. The PTSB CEO bizarrely seemed to rule out a meger or acquisition this week. In the end, it will not be his decision. 

*Shut down: *PTSB needs the EC to approve their survival plan. They also need to pass the ECB stress tests. EC approval has still not been received 2 years later and is looking on shaky ground based on comments this week. The government have looked at shutting PTSB before but is clearly not their preferred option but ultimately it will not be their decision. 

In a nutshell, I think plan A is for PTSB to be acquired or merged. Failing that, the EC or ECB will shut PTSB down via failing the survival plan or failing the stress tests.


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## Lightning (27 Mar 2014)

The_Banker said:


> The results were not generally disected by the media



Agreed and the media have given PTSB an easy time and missed lots of key points from the PTSB results. 

The headlines read that losses were down. The reality was that losses were down because of once off exceptional items due to winding up of its defined benefit pension scheme and deffered tax assets. These will not be repeated. 668 million EUR, before exceptional gains, is a huge loss for a small bank. 

The total capital ratio dropped by over 25% from 20.5% to 14.8% in one year. The Tier 1 capital ratio similarly dropped from 18.0% to 13.1%. Whist, 13.1% is a very impressive number, it hides the fact that capital is getting depleted at a fast pace. The ECB will focus on these capital ratios. 

The profitability of the 58,000 free current account customers needs to be questioned. 

Also, how PTSB are going to bring their 150% loans to deposits ratio down to 100% needs to be questioned. More out bidding the market for deposits? How long can that continue for?

Net interest margin improved 0.10% in 2013. The right direction but nowhere close to the improvement, in net interest margin, at other banks. 

Also, worth noting is that PTSB still have large, but significantly declining, dependencies on the ECB for liquidity. 

Corporate deposits were up a massive 77% YoY, thanks to outbidding corporate deposit rates.

Total assets, mainly loans, their bread and butter, were down 8.1% YoY.


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## MrEarl (28 Mar 2014)

Hello,

Do they pay interest on credit balances in their current accounts, I think not ?

Assuming I am correct, then their strategy of bringing in new current accounts (albeit it, they don't generate fee income) helps them with their funding issue.

Furthermore, the strategy of attracting new customers via their free bank current account, allows them:

- grow their customer base and by extension, helps them claim they are integral to the banking system given their customer numbers

- bring in new customers to try and cross sell other products to increase income streams (I was in with them recently and thought they were never going to stop trying to sell me things, visa cards, house insurance etc)

Ultimately, there is a fix needed for the low cost tracker mortgages and their bad loan book.  Part of this fix will come if they are successful in selling off their non core loans, be it the UK loan book or the commercial loan book, infact they need to sell both and quick.

As for the low cost tracker mortgages, this is a problem for all the banks that lent money on tracker rates and not just the Permo so I expect they are all waiting for (or praying for) some form of national or international fix.

My bet is the PTSB is either merged with UB or failing that, split and the good part sold off to another party (KBC would be a fit, but are probably not willing to make the type of investment that would be required).


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## Lightning (30 Mar 2014)

MrEarl said:


> Do they pay interest on credit balances in their current accounts, I think not ?




PTSB pay 1.00% on the first 1,500 EUR to those that have the current account product that is available to new customers. (Pittance)
PTSB pay 0.25% on the first 1,500 EUR to those that have their legacy current account product called Switch. (Pittance)
PTSB pay 2% on all balances to those aged 12-18 who have a teen current account with PTSB.  
PTSB also pay small interest on a small number of very old other current account products. (Pittance)

You are correct that the free current accounts are an attempt to get people to buy other products with PTSB. However, the problem with their other products is they are not the most profitable in the world either. PTSB are still outbidding the market for deposits which are the next most likely product for customers to open. A loss leader to fund ... a not very profitable product. 

Is running a loss leader the right strategy?



MrEarl said:


> As for the low cost tracker mortgages, this is a problem for all the banks that lent money on tracker rates and not just the Permo so I expect they are all waiting for (or praying for) some form of national or international fix.



The trackers are parked in their SBU which Permo are hoping to offload to NAMA or Curtus but at what cost to book value is the question. 



MrEarl said:


> My bet is the PTSB is either merged with UB or failing that, split and the good part sold off to another party (KBC would be a fit, but are probably not willing to make the type of investment that would be required).



Agreed that it is hard to see KBC, who are focused on organic growth, making the necessary investment, and taking the risk, to acquire a deeply troubled legacy bricks-and-mortar cash retail banking outlet.


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