PTSB said it has managed to free up about €100 million of capital after the Central Bank approved its application to give the bank relief on the risk profile on its mortgage book.
The bank confirmed that it also plans to pay its first dividend since the crisis in the coming months.
The initial capital relief is lower than some analysts had been expecting. Still, the regulatory approval of PTSB’s so-called internal ratings-based mortgage models, for the purposes of calculating how much reserves it must hold, is an important milestone as the bank courts bidders for the business.
Investment bank UBS had estimated in a recent note that the bank could free up €230 million of capital from the project. Goodbody Stockbrokers analyst Denis McGoldrick said the initial relief was in line with his “downside scenario”. His base case was about €150 million and upside scenario was €190 million.
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However, PTSB said that the new models would also “materially reduce the capital intensity of PTSB’s new mortgage lending” over time.
“Today’s announcement is an extremely positive outcome for PTSB which reflects our strategy, prudent credit risk approach and strong asset quality,” said chief executive Eamonn Crowley.
[ Austria’s Bawag could fund PTSB deal through shares and cash, UBS saysOpens in new window ]
“It is a significant milestone in our ongoing transformation, strengthening our position as a competitive force in the Irish market and enabling further growth and sustainable returns for our shareholders.”
Austrian bank Bawag is known to be interested in pursuing a deal with PTSB, having bought Irish mortgages start-up Moco in 2023 and being reported last week to be in exclusive talks to buy Finance Ireland, a nonbank provider of car, commercial property, agri- and small-business loans, for as much as €300 million.
Industry sources say the PTSB process has also attracted several international private equity firms as PTSB and its advisers in Goldman Sachs seek to secure firm expressions of interest by the end of the month.
Lone Star and Centerbridge Partners are expected to bid. JC Flowers, Apollo, Cerberus and Blackstone are also among US private equity firms that have taken controlling stakes in European banks since the financial crisis.
Under PTSB’s new model approved by the Central Bank, every €100 million of PTSB’s existing home loans will have a risk-weighting of 32.8 per cent, down from 36.4 per cent previously.
The new risk ratings will continue to be higher than rivals AIB (about 30 per cent) and Bank of Ireland (over 25 per cent), putting PTSB at a competitive disadvantage by having to hold relatively more capital.
However, the agreement with regulators will allow PTSB to “materially reduce the capital intensity” of new lending.
“Therefore, the capital benefit will increase over time as the bank grows its new lending volumes,” the bank said.
PTSB’s shares rose as much as 6 per cent in early trading on Wednesday to €3.15 as investors priced in the capital relief.
“The implications for the sale of the bank are not clear, with the intrinsic value of the bank increasing, but the upside for any potential acquirer falling away,” said Benjamin Toms, an analyst with RBC Capital Markets.
