Permanent TSB to Sell Shares to Help Fill Capital Hole

Permanent TSB Group Holdings Plc plans to sell shares to help fill a 855 million euro ($1.08 billion) capital hole exposed by European stress tests.

Permanent TSB, based in Dublin, said more than 80 percent of the gap is already addressed, in part by the government’s 400 million euros of contingent convertible notes, or CoCos, which can convert into equity. The lender hired Deutsche Bank AG and Davy, Ireland’s largest securities firm, to explore options to fill the remaining gap that emerged in the European Central Bank’s adverse scenario, published today.

“I’m confident in the story we have,” Permanent TSB Chief Executive Officer Jeremy Masding said on a call with reporters. “As of today, we think we’ve got real momentum.”

While Ireland has injected 64 billion euros into its lenders following a series of local regulatory reviews and stress tests since its real-estate market collapsed in 2008, Permanent TSB is the first to fail a European probe. Finance Minister Michael Noonan said on Oct. 14 that Permanent TSB, state-owned since a 2011 bailout, will be able to raise capital without upsetting state finances.

“The minimum amount they need to raise in the market is about 160 million euros,” said Ciaran Callaghan, an analyst at Merrion Capital in Dublin. “We think there could be market demand for a substantially large capital investment, potentially as much as 450 million euros, which would allow the sale of a strategic stake to new investors.”

Permanent TSB has adjusted common equity Tier 1 ratio of 0.97% in the adverse scenario of the stress test, versus a pass mark of 5.5%, according to the ECB today. The lender passed the other two elements of the ECB, the asset quality review and base-case scenario.

Testing Market

Banks have from six to nine months to fill the gaps and have been urged to tap financial markets first. Masding said he’d start “testing markets” within weeks.

Bank of Ireland Plc, Allied Irish Banks Plc, Royal Bank of Scotland Group Plc’s Ulster Bank unit and Bank of America Corp.’s Merrill Lynch International Bank Ltd. in Dublin passed the latest tests.

Bank of Ireland, the only domestic bank not owned by the government, has adjusted common equity Tier 1 ratio of 9.3 percent in the adverse scenario of ECB’s stress test, versus a pass mark of 5.5 percent.

“The numbers on Bank of Ireland look better than I thought, but both AIB and Bank of Ireland clear the hurdles well,” said Eamonn Hughes, an analyst with Goodbody Stockbrokers in Dublin, who has a buy rating on Bank of Ireland. “There should be positive reaction to Bank of Ireland tomorrow.”

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