[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.