PTSB plays down Ulster Bank talks by selling € 1.4 billion in loans
TSB permanent chief executive Eamonn Crowley tempered speculation he could become a “white knight” merger partner for Ulster Bank in the Republic.
His comments came as the PTSB announced the sale of a € 1.4 billion pool of mortgages for rent in boom times where borrowers are only required to pay interest until maturity. loans.
“We are watching Ulster Bank with interest,” Crowley said on Tuesday, before clarifying that the PTSB’s interest was as an actor and observer of the industry, rather than as a potential buyer of the assets of Ulster Bank.
“It’s completely hypothetical at the moment. We are focused on executing our strategy. This is where we focus – and nowhere else.
Mr. Crowley noted that the PTSB has long been the subject of industry mergers and acquisitions discussions. However, a report from the Irish Times last month that Ulster Bank’s parent company NatWest was actively considering shutting down the Irish unit as part of a strategic review that also looked at potential mergers and acquisitions, has prompted analysts to reassess the potential for a merger with the PTSB. .
Deutsche Bank analysts said last week that a merger between Ulster Bank and PTSB could result in a 59% increase in pre-tax profits for a combined entity if overall costs are reduced by 10%.
However, the high capital reserves that banks must hold mean that the return on equity invested by shareholders – a key measure of a bank’s profitability – would be only 3%, they said.
Bank investors typically see an 8-10% return on equity as a sign of a healthy business.
Sale of mortgages
The PTSB said on Tuesday it was selling US banking giant Citigroup a pool of single-rate mortgages with a gross value of 1.4 billion euros, with the loans to be refinanced in international bond markets.
The operation concerns 3,400 borrowers and the loans have an average balance of € 375,000. They are classified as healthy outstandings with an average residual maturity of 10 years. None of the loans were subject to payment interruptions during the Covid-19 pandemic, the lender said.
PTSB will receive the € 1.2 billion net worth of Citigroup’s Citibank NA London portfolio for loans, before the US bank sells bonds against them to investors in a transaction known as securitization.
The deal marks the first loan sale by an Irish lender since the start of the coronavirus crisis. The Bank of Ireland decided at the height of the pandemic earlier this year to postpone a securitization deal that would move hundreds of millions of euros in non-performing mortgages off its balance sheet. AIB has also withdrawn a plan to sell problematic home loans.
The PTSB reported in February that it was assessing the risks associated with thousands of rental mortgages, worth € 2.5 billion, which were granted before the crash and were issued on terms of interest only until maturity of loans.
The bank said at the time that it was engaging with customers to develop “credible” principal repayment plans to estimate the long-term health of this portfolio. The bank cannot change the terms of the loans as long as the borrowers meet the contractual conditions.
The terms of the individual loans involved in the sale are not affected by the transaction. The Pepper loan service company will ultimately manage the day-to-day loans on behalf of bond investors.
The divestiture will also increase PTSB’s capital reserves, but will increase its NPL ratio to 7.7 percent from 7 percent. However, it will effectively free up € 200 million of expensive portfolio-related capital.
Capital ratio
Mr Crowley noted that the amount of capital PTSB was required to hold against portfolio loans was twice as much as the bank’s typical mortgages.
“This transaction will increase the bank’s total transition capital ratio by 2.1%, strengthen the balance sheet and provide us with the resources to compete in our core markets for personal mortgages, personal loans and SME loans,” Mr Crowley said.
“All applicable terms and conditions continue to apply, which means customers will enjoy the same consumer protections upon completion of the transfer. Like Permanent TSB, Pepper is regulated by the Central Bank of Ireland and is required to comply with consumer protection law when dealing with customers.
After the transaction, PTSB will keep on its balance sheet 900 million euros of rental loans at interest rate only. Mr Crowley said that unlike the loans sold, the retained loans were generally for clients who had other business with the bank.
