[Short answer, between January and April 2013]
Yesterday, there was a blogpost on here calling for that third pillar bank – or more correctly “money pit” – Permanent TSB to be broken up and wound down. So far Irish Life, the company which comprised PTSB and the Irish Life insurance business has received a bailout from the State of €4bn. It looks on here as if it will need another €1-2bn at the start of 2013 to help repay €2.7bn of bonds which fall due in January and April 2013.
Although we are 18 months past the 2011 General Election, we still haven’t forgotten transport minister, Leo Varadkar’s “not another red cent” for the banks. The jejune Leo might have body-swerved subsequent criticism by emphasising the caveat that any future bailout would be subject to what were the imminent stress tests in March 2011. But in the case of Permanent TSB, we have a bank which was stress-tested, and which was capitalised in full by the Irish state in line with the needs identified by the Central Bank of Ireland. As things stand today, it seems as if PTSB will be coming back with the begging bowl real soon.
Here is PTSB’s balance sheet at the end of June 2012.
PTSB doesn’t have very much cash on hand, just €59m, but that shouldn’t be a cause for concern by itself. And PTSB says that it has €2.119bn of “cash and cash equivalents” at the end of June. It should be noted that the June 2012 results include €1.269bn of cash received for the Irish Life sale. Between January and June 2012, PTSB’s “cash and cash equivalent” increased by €1.0bn but this is mostly represented by the cash received for Irish Life plus the Northern Rock Ireland deposit book acquired by PTSB, together totalling €1.7bn offset by cash outflows from its operations of €0.7bn.
Does PTSB have any major outgoings coming up in the near future? Oh yes, it is required to repay €2.775bn of bonds in 2013 – the majority payable in January and April 2013. Here is what Minister for Finance Michael Noonan told the Sinn Fein finance spokesperson in July 2012.
“During 2013 there are a variety of debt securities which comprise the €2,775 million stated in Note 24 to the 2011 annual report and accounts, the largest of which are a €1.4 billion guaranteed maturity in January 2013 and a €1.2 billion guaranteed maturity in April 2013. As stated in 33791/12 PTSB expects 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.”
Will PTSB have any exceptional cash receipts? Seemingly not, with the abandonment of the €8bn Capital Home Loans sale earlier this year. In recent months there has been speculation that PTSB is doing a deal off-market, but that has been denied by PTSB. Still, the stream of Indian-looking gentlemen visiting Permanent TSB’s HQ on Dublin’s St Stephen’s Green hasn’t gone unnoticed and rumours persist – denied by PTSB – but as thing stand, no, there is no exceptional cash receipt on the horizon.
We find from PTSB’s cash flow statement (see below) for the six months to the end of June 2012 that the net cash outflow from operations was €0.7bn. If that is repeated in the next six months – and with the ECB having reduced its main interest rate to 0.75% in July 2012 we know that PTSB will suffer from lower mortgage payments, even if there is some cushioning from lower interest on ECB borrowings – then the cash and cash equivalent available to PTSB will be €1.4bn at the end of this year, which will be just about enough to pay for the first big bond in 2013 – the €1.4bn payable in January 2013. PTSB has no chance, it would seem, of paying for the second bond in April 2013 of €1.2bn. Looks like PTSB will need €1-2bn of additional bailout.
What about the ECB? As we know, the ECB has been providing exceptional levels of liquidity to Irish banks. So can’t PTSB just tap the ECB for more cash? This is where PTSB in particular has a problem. In order to get cash from the ECB, banks need to pledge assets as collateral, and in PTSB’s case, its collateral is lousy. It’s mostly tracker loans with a loss-inducing interest rate, and industry sources suggest PTSB has maxed out its liquidity access at the ECB.
So in summary, unless something exceptional turns up, PTSB will itself be turning up at the Department of Finance on Upper Merrion Street with the begging bowl by the end of this year, looking for another €1-2bn. The breaking up of PTSB as called for on here yesterday will not prevent the additional bailout, and we should not be selling State-owned assets at fire sale prices, but breaking up PTSB will help save costs over the longer term by avoiding a triplication of services and competition for resources and customers.
Hi Nama Wine Lake,
Great article.
The ECB has reduced collateral requirements on multiple occasions. Even if the ECB, does not provide liquidity, then the CBI will, which has even lower collateral requirements.
It is getting clearer that the next stress tests will results in PTSB needing yet more capital. Upper Merrion Street will be called upon.
NWL – Do you know who one would contact in the EC if one wishes to comment on the proposed future of PTSB? Thanks.
@Ciaran, thanks for the comment. The problem with PTSB is that its main asset is its mortgage book, and in that, most of it is loss making tracker which severely reduces its value as collateral.
I presume that the restructuring plan was sent to the Competition Commissioner who is Alexander Italianer, details here (including contact details)
http://ec.europa.eu/dgs/competition/director_general.html
It was the Competition Commission which gave the thumbs down to Anglo’s restructuring plan.
Thanks NWL.
Good critical analysis that looks behind the PR and BS. Don’t think we’ll be seeing a report on this from GIS/RTE anytime soon.
Do you know if the Public Interest Directors have any duty to report to anyone about what is going on or what exactly are they doing?
Another billion euro log for the bailout bonfire. Morgan kelly was wrong when he said that St. Stephen’s Green was needed to accommodate the blaze – looks like we’ll need the Phoenix Park or maybe Co. Meath!
the bank had capital of 3.5bn @ end of june 2012 and also bought 1.6bn in irish govt bonds in the last 12 months presumeably from the procceds of the LME and the contingency convertible notes 1.4bn the other 200million ? i dont understand this article
I gave up understanding this months back. All I know is that the directors and Irish Governement have plundered and destroyed this company. As a result investors are very wary of investing in Ireland. The financial press are in the government’s pocket and the whole way the recapitalisation was handled left a nasty taste in the mouth of shareholders who have seen their shareholdings fall from 22 Euro per share to 0.02E. That’s a -99.9% fall! Only in Ireland.
les irlandais sont des moutons!comment expliquer que les cadres touchent des salaires honteux 200000 A500000 EUR alors que des irlandais sont jetés de leurs maison et que la banque appartient au convernement!!!