Permanent TSB has had its plan to plug the €855 million capital hole identified in pan-European bank stress tests in October has been "endorsed" by the supervisory board of the Single Supervisory Mechanism, the EU body now responsible for financial regulation of euro zone banks.
This decision helps to clear the way for PTSB, which is 99.2 per cent owned by the State, to raise capital from external investors in the new year.
The SSM has endorsed all of the capital plans put to it by banks that failed its tests. It now just remains for the governing council of the SSM to give its approval and this is expected to happen in the new year.
A spokesman for PTSB said it “welcomed” the SSM’s endorsement for its plan. The bank has until late July to plug the capital hole.
Stress tests run by the European Central Bank this year identified a capital shortfall at PTSB of €855 million based on its 2013 accounts. PTSB subsequently said that more than 80 per cent of this figure had already been accounted for leaving a shortfall of just €125 million.
The bank has engaged in so-called non-deal roadshows to drum up interest from external sources in providing about €200 million in return for an equity stake.
Getting the green light from the SSM for its capital plan was important for the bank as it seeks to raise external funding. PTSB also needs to receive approval from the European Commission for its restructuring plan, which has been redrafted twice already. It is not clear when this might be forthcoming.
The details of PTSB’s capital plan have not been revealed. But it had €400 million in contingent convertible capital notes, or CoCo’s as they are better known, that form part of its €2.7 billion State bailout. These could be used to offset the shortfall.
The bank is unlikely to convert them as it would dilute the bank’s return on equity but he can recognise them in the capital plan as an accounting treatment.
In addition, PTSB has sold some assets, including its Springboard sub-prime mortgage book in Ireland, that flatter the numbers. There are also provision releases that it can take - it has €4.2 billion of them on its books - and other technical items that emerged in the stress test exercise that it can use to its benefit.
