Goodbody says PTSB’s Ulster Bank deal can pave way for return of dividends

Permanent TSB's (PTSB) planned "transformational" purchase of much of Ulster Bank's loan book will prepare the path for the group to return to paying dividends over the medium term for the first time since the financial crash, according to Goodbody Stockbrokers.

"While we do not project a return to dividends over our forecast horizon [over the next two years] we recognise that there are prospects for shareholder distributions in the years ahead," Goodbody banking analysts, led by John Cronin, said in a report published on Tuesday.

“We now review how the agreed acquisition of Ulster Bank loan portfolios is set to prove game-changing from a bank returns perspective, and we acknowledge that capital returns could be the next leg of the equity story.”

Goodbody upgraded its rating on PTSB’s stock to outright buy from a previous hold recommendation.

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PTSB, in which Irish taxpayers hold a 75 per cent stake, is alone among the State’s three surviving bailed-out banks in not having returned to paying dividends since the 2008 crash, having consistently delivered sub-par profit returns as its balance sheet shrank dramatically over the course of more than a decade.

However, PTSB agreed last month to buy an estimated €6.8 billion of Ulster Bank loans as the UK-owned bank retreats from the market. This would increase the size of PTSB’s loan book by almost 50 per cent and help boost returns.

Ulster Bank's parent, NatWest Group, will take a 16.7 per cent stake in PTSB as part payment for the transaction, subject to regulatory approval.

While AIB and Bank of Ireland refrained from paying dividends over the past two years to conserve capital during the Covid-19 crisis, in line with European Central Bank guidance, both are preparing to make payouts to shareholders after reporting upcoming full-year results for 2021.

The Goodbody analysts forecast that AIB will hand over €175 million of dividends. AIB took over Goodbody last September. They expect Bank of Ireland to make a €160 million payout.

Stance

“There are several factors that underpin our bullish stance on the Irish banks for 2022. A supportive macroeconomic backdrop should see continued healthy organic loan originations growth, with strategic M&A (mergers and acquisitions) set to bolster lending balances further,” the Goodbody report said.

In addition to its recent Goodbody purchase, AIB is currently seeking regulatory approval to buy €4.2 billion of Ulster Bank loans, and is setting up a life and pensions joint venture with Canada Life.

Bank of Ireland plans to buy KBC Bank Ireland's mortgage-focused €9 billion of performing loans as the Belgian-owned lender seeks to exit the Irish market. It has also agreed to buy stockbroking firm Davy.