At a speech yesterday in Dublin on the Single Resolution Mechanism (SRM) the Vice President of the European Commission (Joaquín Almunia) indicated that the approval of ptsb’s restructuring plan should be approved “hopefully, in a few months”, with the final plan also reflecting the recent acquisition of Newbridge Credit Union. He went on to say that the EC is “waiting for the presentation of clear ideas” with technical work ongoing. He also suggested that AIB’s restructuring proposal would be considered in a similar timeframe. <p>
At the time of AIB’s recent IMS (14 November) it stated that discussions with the EC on the approval of its Restructuring Plan were at an advanced stage, while ptsb submitted an updated plan during the summer. We suspect that the EC will want to see the impact of the Balance Sheet Assessments (BSA) on the institutions’ 2013 year-end final accounts before making a final decision on the plans. However we are not overly concerned about the delay in agreeing AIB’s plan, with the institution considered a pillar Irish bank of systemic importance to the Irish economy. We expect AIB to return to profitability next year, driven by margin expansion and cost take-out underscoring its viability without State assistance. Furthermore AIB has already completed substantial burden sharing over the downturn, disposing of non-core (lucrative) assets in the US and Poland while also generating capital from Liability Management Exercises (LMEs) on junior bondholders. As a result we do not anticipate any material surprises to materialise as its final term sheet is agreed with DG Comp. <p>
In contrast the future shape of ptsb’s business model is still unclear. The group is not expected to return to profitability until 2017 (at the earliest) due to its low net interest margin (H1 2013: 82bps versus BoI of + 190bps in Q3 2013) as revenue generation is constrained by exposure to tracker mortgages (c. 70% of total loans). In addition the banks’ elevated loan to deposit ratio (H1 2013: 157%) and ECB reliance (H1 2013: €8bn) present structural problems with an external funding solution remaining elusive (and likely requiring Parliamentary approvals of Member States if ever getting that far). However we note ptsb’s new management team have made significant progress in stabilising the institution (deposits rising by 34%/€5bn since 2011 to €19.2bn at H1 2013) while building an impressive arrears unit and collections operation. ptsb’s systemic importance is also increasing as foreign banks retrench to home markets. Encouragingly the group also re-entered the debt markets, raising €500m through a RMBS issue last month. Though we would like to see the bank’s restructuring plan agreed prior to the EU stress tests in order to give us more confidence in the group’s future strategy.
<p><h5>Ciaran Callaghan</h5>
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