Ireland’s PTSB to Raise $560 Million After Stress Tests

Permanent TSB Group Holdings Plc plans to raise 525 million euros ($560 million) of capital to bolster its balance sheet after failing European stress tests last year.

The Irish residential mortgage lender will seek 400 million euros of equity to repay and replace the same amount of contingent convertible notes that the state bought in 2011 as part of a bailout, it said in a statement on Wednesday. It also plans to raise 125 million euros of additional Tier 1 capital.

The lender, 99 percent state-owned after receiving a net 2.7 billion-euro bailout in 2011, said its pretax loss narrowed to 48 million euros last year from 668 million euros in 2013. The European Commission has agreed to a restructuring plan for the company following its rescue, it said on Wednesday. The approval will help the bank as it seeks to raise equity.

“Today’s announcements herald a series of moves which will, on completion, transform the Permanent TSB Group and start the process of returning the group to the private sector as a stand-alone, competitive and successful force,” Chief Executive Officer Jeremy Masding said in the statement.

The government intends to remain a majority shareholder after the sale, which PTSB plans to complete by the end of June, Masding told Newstalk radio in Dublin. Small investors, who own 0.8 percent of the bank, will be allowed to buy stock in the transaction, according to the lender.

Share Sale

Permanent TSB hired Deutsche Bank AG and Irish securities firm Davy to assess market demand for a share sale after it failed the adverse scenario of European Central Bank stress tests. The Dublin-based lender said at the time it had already covered more than 80 percent of a 855 million-euro capital hole found in the tests with the state’s 400 million euros of contingent convertible bonds and by shrinking its balance sheet.

The bank said on Wednesday it has agreed to sell about 5 billion euros of non-core assets including 3.5 billion euros of U.K. mortgages and 1.5 billion euros of mainly Irish commercial real estate loans.

The U.K. loans are set to be sold to Cerberus Capital Management, PTSB said in the statement. A group led by Deutsche Bank won the bidding for the Irish loans, comprised of two portfolios, according to a person familiar with the matter.

After these sales, PTSB will have completed more than half its deleveraging plans, said Masding, who took over in 2012.

“On first look, PTSB’s capital plan and investment case appear credible with the non-core deleveraging of low-yielding U.K. loans to significantly transform the balance sheet and enhance viability,” said Ciaran Callaghan, an analyst with Merrion Capital in Dublin, who doesn’t have a PTSB rating.

The bank was able to narrow its pretax loss after it released 42 million euros previously set aside to cover bad loans. In 2013, it had a loan-loss charge of 929 million euros.

Irish lenders such as Allied Irish Banks Plc and Royal Bank of Scotland Group Plc’s Ulster Bank unit also freed up loan-loss provisions last year, helping their return to profit for the first time since Ireland’s real estate market implosion in 2008.

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