Two weeks ago, Irish Life and Permanent (ILP) received €1.3bn from the Irish state which brings to €4bn the cumulative bailout to that institution which we 99% own. It is a colossal sum of money, though it is dwarfed by the €69.7bn total bailout including the €5.6bn of state aid paid by NAMA.
But €4bn for ILP, is that it?
That’s what the stress test undertaken by BlackRock, Barclays Capital, the Boston Consulting Group and the Central Bank of Ireland at the start of last year, indicated, that is, that ILP would need €4bn of a bailout under an adverse scenario. But take a look at the ILP balance sheet extracted from its 2011 Annual Report.
On the liabilities side of the balance sheet, PTSB has two – interbank debt and debt securities in issue. When do these fall due and how will they be funded?
In the Dail on Tuesday, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan. Here’s the full exchange
“Deputy Pearse Doherty: if he will outline known future funding requirements for Irish Life and Permanent in 2012-2015 for its repayment of inter-bank and other debt, and if he will outline the expected source of such funding..
Minister for Finance Michael Noonan: I have been advised by Permanent TSB that the scheduled maturities of its wholesale debt are set out in note 22 of its 2011 annual report. Permanent TSB’s future funding requirements are impacted by these scheduled maturities and the liquidity available over time from market sources, systemic funding and deposit funding. I have been informed by PTSB that, at the present time, it is unlikely that they will be able to issue senior unsecured debt to replace wholesale funding as it matures. PTSB expect to meet maturity needs from the €1.3 billion of liquidity received from the sale of Irish Life, deposit growth and the benefits of restructuring the balance sheet. PTSB will continue to review opportunities for secured debt issuance.”
Hmmm. Take a look at the inter-bank debt
And take a look at the debt securities in issue.
Irish Life and Permanent has a major funding cliff approaching with €2,775m repayable in 2013 and although Minister Noonan didn’t answer the question above, there is €2.7bn owed to banks other than central banks but we don’t know the maturity.
What Minister Noonan does tell us above is “at the present time, it is unlikely that they will be able to issue senior unsecured debt to replace wholesale funding as it matures” Minister Noonan refers to the sale of Irish Life but even this will not be enough to meet the €2.8bn which we know will mature in 2013.
But maybe ILP’s fortunes may turn around?
They may, and despite having a colossal tracker mortgage portfolio, it seems the banking operations were not significantly affected by last week’s ECB rate cut. Deputy Doherty also asked Minister Noonan about the impact of the ECB rate cut last week; this is the full exchange
“Deputy Pearse Doherty: To ask the Minister for Finance following the decision by the European Central Bank on 5 July 2012 to reduce its main interest rate by 0.25%, if he will set out the impact this will have on the tracker mortgage portfolio held by Irish Life and Permanent, and specifically if it may give rise to additional capital needs to be footed by the State..
Minister for Finance Michael Noonan: I have been advised that the reduction in interest income on annual basis from the 0.25% reduction would be in the order of €40 million, which would reduce the net interest income of PTSB by circa €12 million assuming the current level of ECB funding remained in place and the cost of other funding to PTSB remained static. In order to mitigate the impact of the interest income reduction, PTSB will seek to reduce the cost of funding where possible, including a reduction in the price of deposit products.
At the present time, and based on forecasts provided, it is not anticipated that additional capital is required for PTSB. PTSB is currently well capitalized with a core tier 1 ratio at 31 December 2011 of 17.9% (pro-forma for Irish Life sale was 26.4%).”
And what about that same tracker mortgage loanbook. Where are we up to with proposals to move it from ILP? Again, Deputy Doherty:
“Deputy Pearse Doherty: To ask the Minister for Finance to set out the current position with respect to proposals for the tracker mortgage portfolio held by the Irish Life and Permanent group, and specifically if he will confirm if there are proposals to move the portfolio from ILP to another entity; and if he will outline the terms on which such a transfer would be made..
Minister for Finance Michael Noonan : As the Deputy can appreciate, officials from the Irish Authorities are in constant on-going dialogue with all of the covered institutions with a view to considering and implementing structures and solutions which would seek to advance the overall financial system. As and when further measures are agreed/solutions emerge I will inform the Houses as appropriate. The Government’s aim is to arrive at a successful conclusion that is in the interests of Ireland and the EU. As no decision to transfer the tracker mortgage portfolio to any other entity has been taken, I cannot outline the terms which might apply to such a transfer.”
So, does Irish Life and Permanent need an additional bailout? Not for the present it seems, but when it needs repay €2,775m in 2013 and deal with its €2.7bn of non-central bank inter-bank debt, it may. So keep your eyes peeled for an additional €5.5bn bailout request!