Permanent TSB Falls as Test Fail Spurs Share Sale: Dublin Mover

Permanent TSB Group Holdings Plc fell the most in 16 months after the bailed-out Irish lender said it plans to sell shares to help cover a capital hole that surfaced in European Central Bank stress tests.

Permanent TSB, which is 99 percent state-owned, fell as much as 24 percent, the biggest drop since June 2013, and was down 10.5 percent at 6 euro cents at 10:18 a.m. in Dublin. The bank said yesterday it plans to sell at least 125 million euros ($159 million) of shares to help cover an 855 million-euro capital shortfall resulting from the ECB tests. It has plugged more than 80 percent of the hole through 400 million euros of contingent convertible bonds held in the bank and by shrinking its balance sheet, he said.

“There could be demand for a substantially larger capital investment, potentially as much as 450 million euros, which would allow the sale of a strategic stake to new investors,” said Ciaran Callaghan, an analyst with Merrion Capital in Dublin. “Helped by the prospect of provision writebacks and the bank’s large retail presence in Ireland, we believe there is likely to be significant interest for such a transaction.”

Permanent TSB was alone among Ireland’s three surviving bailed-out banks not to pass the ECB tests. Bank of Ireland Plc rose in Dublin trading after the only Irish bank to escape state control during the financial crisis fared better in the ECB stress tests than some analysts had expected.

Bank of Ireland rose as much as 3.8 percent and was 0.3 percent higher at 31.7 euro cents at 10:29 a.m.

The bank had an adjusted common equity Tier 1 ratio, a measure of financial strength, of 11.8 percent after the ECB asset quality review, well above the minimum 8 percent required, the Frankfurt-based central bank said yesterday. The bank’s ratio under an adverse scenario was 9.3 percent, compared to the 5.5 percent pass mark.

“The results of the ECB’s Comprehensive Assessment and stress tests show that Bank of Ireland and Allied Irish Banks have capital buffers comfortably above minimum requirements,” Fiona Hayes, an analyst with Cantor Fitzgerald in Dublin, said in a note. The difference between the banks’ reported and adjusted capital ratios after the tests “were not as large as might have been feared, indicating comfort with Irish banks’ provisioning levels.”

Ireland’s government retains a 14 percent stake in Bank of Ireland as a legacy of the state’s 64 billion-euro rescue of its financial system after a real-estate collapse in 2008.

“The numbers on Bank of Ireland look better than I thought,” said Eamonn Hughes, an analyst with Dublin-based Goodbody Stockbrokers, who has a buy rating on the stock.

Bank of Ireland may be able to follow some other Irish banks, including Allied Irish Banks Plc, Permanent TSB and RBS’s Ulster Bank, that have this year released some funds that had been set aside to cover bad loans, Callaghan said.

The lender still assumes a 55 percent peak-to-trough home price fall when setting aside loan loss provisions, even though a recovery in values in the past year left prices 40 percent off their 2007 at the end of September, according to Central Statistics Office data.

Ireland’s main banks have said that their loans in default started to fall last year for the first time since the crisis as the local economy began to recover.

AIB, which is 99.8 percent state-owned after a 21 billion-euro bailout, “remains on course to begin the repayment of its state aid over the coming months,” Callaghan said.

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