Permanent tsb reassures customers after failing ECB stress test
One of Ireland’s leading banks has moved to reassure its 1.3 million customers after it failed a major European health check.
Permanent TSB is scrambling to plug an €885m hole in its reserves exposed by the European Central Bank (ECB).
It was one of 25 banks in the eurozone who failed the so-called stress tests, designed to ensure lenders can withstand any future economic shocks.
The ECB confirmed the four other main Irish financial institutions – AIB, Bank of Ireland, Merrill Lynch and Ulster Bank – all passed the requirements.
In a statement today, Permanent TSB Group chief executive Jeremy Masding said the lender has already “provided for” more than 80% of its capital shortfall.
“The tests were based on our position at the end of December last and we’ve made huge progress since then on a number of fronts, so we’ve already provided for over 80% of the shortfall that the ECB identified,” he said.
“We look forward to bringing international investors on board now to raise the remaining amount which will leave the bank fully in line with the ECB requirements.”
The state-owned bank is working with international investment lender Deutsche Bank to raise the remaining shortfall over the coming months.
Mr Masding said the failed stress test would have no effect on the day-to-day operations of the bank or on its customers.
“The tests confirm that Permanent TSB has more than enough capital to meet what the ECB describes as a baseline scenario and has made the right provisions for dealing with bad loans,” he added.
“Customers are unaffected by these tests and are not required to do anything as a result of today’s news.”
Permanent TSB is more than 99% owned by Irish taxpayers.
It was found to have enough reserves for normal economic conditions but failed stringent tests based on the event of a serious economic calamity before 2016.
Cyril Roux, deputy governor of Ireland’s Central Bank, said the stress tests are designed to measure the resilience of banks to a prolonged economic downturn.
“The outcome from the comprehensive assessment shows that progress that has been made in recent years to stabilise and rebuild the banking system in Ireland,” he said.
“The asset quality review has validated the balance sheet assessment we conducted a year ago.
“All but one of the Irish institutions meet the adverse and severe criteria applied by the stress test, with a capital requirement only identified in the adverse scenario for Permanent TSB, reflecting ongoing legacy issues which the bank is continuing to work through.”
He added: “In line with requirements, Permanent TSB will submit a capital plan to meet the shortfall.”
Mr Roux said the scenario used in the stress tests does not reflect the actual or expected future financial position of individual institutions.
“The results should have no adverse impact on the day-to-day operations of any of the banks and has no impact on consumers,” he added.
Finance Minister Michael Noonan said the overall results confirm the strength of the Irish banking system.
“The comprehensive assessment was a strict and comprehensive examination of the European banking system and the results for the Irish banks highlight the strength of the banking system and the significant progress that has been made since 2011,” he said.
Mr Noonan said Permanent TSB has made “strong progress” since new managers took over in 2012 and has already done significant work to raise its financial reserves to European standards.
“I am supportive of Permanent TSB’s plans to raise capital from private investors given the taxpayers’ investment in the bank, the importance of the bank to the economy, its customers – performing and non-performing – and its 2,200 staff,” he said.
“My officials will review any proposals made by Permanent TSB and will work with Permanent TSB and other stakeholders to ensure a successful execution of the capital plan in 2015”.
An ECB statement said 25 of Europe’s 130 biggest banks were found to need stronger buffers – but that 12 have already made up their shortfall.
The remaining 13 have two weeks to tell Frankfurt how they plan to increase their capital reserves.
ECB officials checked the worth of bank holdings and subjected banks to a stress test that simulates how their finances would fare in a downturn.
The exercise is aimed at strengthening the banking system so it can provide more credit to companies and boost the weak European economy.
It also paves the way for the ECB to take over on November 4 as the Europe’s central banking supervisor.
It is supposed to make sure hidden troubles in the system are fixed before landing in the ECB’s lap.
The ECB’s new role is aimed at strengthening the euro currency union by toughening oversight of banks and keeping their troubles from dumping large losses on national governments’ finances through bailouts.
