PTSB sells €300m of ‘bail-in-able’ senior bonds

Permanent TSB (PTSB) this week sold €300 million of senior bonds that can be converted into equity if the bank runs into trouble as it seeks to comply with new European rules designed to minimise taxpayer bailouts in the event of another crisis.

The bank, led by chief executive Jeremy Masding, received orders for about two times the amount of debt that was on offer, according to market sources. The bonds were priced on Thursday afternoon to carry a coupon, or interest rate, of about 2.13 per cent.

Goodbody Stockbrokers analyst Eamonn Hughes said that he expects PTSB to follow up the transaction with the sale of a further €300 million of senior bonds in 2020, followed by a similar-sized sale of junior notes later in the year, or early 2021.

The bank has said that it plans to sell €1 billion of bail-in-able senior and junior debt to comply with the new European rules.

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Protection

Most banks, including all three Irish lenders, are issuing bonds that can be bailed in through holding companies that lie above their operating businesses. The operating companies will continue to hold customer deposits, affording them a greater level of protection.

Mr Hughes said that while PTSB’s profitability is weak – with its return on equity (RoE) currently standing at 2-3 per cent, against normal market expectations for a retail lender of about 10 per cent – the bank’s robust “balance sheet is more attractive” for debt investors.

PTSB’s common equity Tier 1 capital ratio – a key measure of a bank’s reserve of money to withstand a shock loss – should end this year at about 14.6 per cent, according to Mr Hughes. That compares to management’s target of 13 per cent.

The bank, which had a non-performing loans (NPLs) ratio of 28 per cent at the start of last year, has moved in the past 18 months to sell off problem loans to improve its creditworthiness.

The latest transaction, agreed last week and involving the sale of 1,422 home loans and 510 buy-to-let mortgages with a gross value €506 million, will push the NPLs ratio down to 7 per cent, compared to its 5 per cent near-term target.

Davy analysts Stephen Lyons and Diarmaid Sheridan said the successful bond sale this week "bodes well" for PTSB's future bond-sale plans.