Fianna Fáil Finance spokesperson Michael McGrath has welcomed reports that Bank of Ireland and AIB are likely to pass the ECB bank stress tests. However he warned that while the Irish banking sector is no longer on the critical list action is needed on range issues, in particular ensuring that Permanent TSB is put on a sound footing for the future and creating a more competitive banking environment for personal and business customers.
Deputy McGrath commented, “Permanent TSB is potentially a very good asset for the state. It has a national branch network, good brand recognition, a growing customer base and can provide much needed competition in the sector. Its full potential must be realised now the stress tests have been concluded.
“It seems likely that Permanent TSB will need somewhere between €800m and €1bn in capital, part of which will can be generated internally. If additional equity capital is required there is likely to be interest from private equity investors. Their sole motivation will be to buy at the lowest possible price and maximise their potential future profit as we saw in the case of Bank of Ireland. The Irish public have put a considerable amount of money in to Permanent TSB at this stage. It would be unacceptable if the state’s holding was sold down at bargain basement prices. The government should seek to maximise the value of the brand and if necessary be willing to maintain the state’s holding so that it is in a position to benefit from future upturn in the bank’s value. Private equity investment is welcome but not at any price.
“Permanent TSB has a good management team and has made solid progress to date in turning the company around. It has the potential to be a significant player in the Irish banking sector, which is woefully devoid of competition, particularly in personal and small business banking. The bank has been held back by the failure to finalise the restructuring plan which has been awaiting European Commission approval for over two years. It is imperative that this is concluded alongside any capital raising that is done,” added Deputy McGrath.
“The key issue for the future for Permanent TSB and to a lesser extent AIB is solving the problem of the losses it is making on tracker mortgages. These have previously been described as “eye-watering” by its Chief Executive. The Minister for Finance has talked up the prospect of action in this regard at European level but nothing has happened to date. He needs to put a case to the European Commission and ECB to devise a mechanism to deal with the losses on tracker mortgages. This is essential to putting the Irish banking sector on a sound long term footing.
“As part of its restructuring PTSB is selling its sub-prime division Springboard. The sup-prime sector is the worst part of the mortgage sector with arrears of over 50%. There has been an unacceptable delay in ensuring that adequate protection is in place for borrowers, as well as realistic targets for sub-prime mortgages that are in arrears,” concluded Deputy McGrath.