Permanent TSB is planning to acquire €7.6 billion in mortgages and small business loans from Ulster Bank as part of the Bank’s phased departure from the Republic of Ireland. While this is only a portion of the €22 billion deposit book, this acquisition can turn Permanent TSB into a major player in the lending industry.
Back in February of 2021, Ulster Bank confirmed that it will be leaving the Republic of Ireland for good. Being the third-biggest lender in the state, a bank that size cannot leave without doing so in phases. That being said, the Bank is doing a phased withdrawal over the next couple of years. A huge part of this withdrawal included the transition of €7.6 billion in mortgages and small business loans from Ulster Bank to Permanent TSB.
Permanent TSB believes that the acquisitions can boost its profitability by almost 50%. As the company reports a net loss of €5 million for the first half of 2021, this is huge for them. The company also expects earnings to rise to 9% or more of shareholders’ equity in the later months. This would put the lender in the 8-10% range that is needed to be considered a healthy bank.
The lender signed a memorandum of understanding with NatWest, the group’s parent, that includes 25 Ulster Bank branches as well as the transfer of hundreds of its employees. This transition is expected to occur by the end of 2021, leaving plenty of room for the process to be completed by the end of 2022.
NatWest has been very negotiable in terms of how they want to be paid for this deal. It is estimated to cost Permanent TSB €440 million of additional capital, which NatWest has stated may be partially paid with shares rather than cash payment. The parent group is also giving Permanent TSB a discount on the purchase, allowing them to pay it off at a reasonable value.
When it comes to shares, the bank has seen immense growth over the year. The bank gained €800 million in the first half of the year from new mortgage lending. The deal will leave Permanent TSB with a share in the total stock of Irish residential homes of over 20%. This is just another piece that will help them get to be a major player in the mortgage lending industry.
As the deal continues to roll out and Ulster Bank continues to transition out of the Republic of Ireland, it will be interesting to see what deals they make next, as well as how successful permanent TSB will be following the completion of this deal.
Brennan, Joe. “PTSB Sees Ulster Bank DEAL BOOSTING PROFIT Returns by 50%.” The Irish Times, The Irish Times, 28 July 2021, www.irishtimes.com/business/financial-services/ptsb-sees-ulster-bank-deal-boosting-profit-returns-by-50-1.4632514.