Restructuring aid in favour of Irish bank Permanent TSB approved

The European Commission has found that restructuring aid granted by Ireland to Permanent TSB (PTSB) is in line with EU state aid rules. The restructuring plan sets out the path for PTSB to become viable in the long-term without further state support, while ensuring that the bank and its owners contribute to the cost of restructuring and limiting the distortions of competition created by the aid.

Before the financial crisis, PTSB – then operating under the name Irish Life and Permanent – expanded rapidly with a focus on lending to the growing Irish property market and a strong reliance on wholesale funding. When the global financial crisis broke out, which hit the Irish economy and notably the Irish property market particularly hard, the vulnerability of PTSB’s business model became clear and PTSB had to resort to state support. It received on a standalone basis €2.7bn of capital support that the Commission approved in July 2011, as well as various state guarantees. Final approval of the aid was made subject to Ireland submitting an appropriate restructuring plan for the bank that needed to be approved under state aid rules.

The initial plan submitted by Ireland was subsequently adjusted and updated several times to account for changing market conditions, the results of the October 2014 comprehensive assessment of major European banks by the Single Supervisory Mechanism, and agree terms to ensure the bank’s long-term viability.

The Commission’s assessment concluded that the final version of the proposed restructuring plan sets out a credible strategy to make PTSB profitable. PTSB will operate as a smaller domestically focused bank with an improved funding profile. It will increase its level of profitability notably by disposing of its low-yielding assets and increasing its net interest margins. Finally, PTSB will raise capital from private investors to achieve and maintain a strong capital buffer during the restructuring period. PTSB also has contingent capital instruments which can be converted into equity, if needed. These measures will enable PTSB to return to long-term viability without further state support.

PTSB has already implemented a series of restructuring measures, including deleveraging, liability management exercises and cost reduction measures, which contribute to its return to viability and ensure that the aid is limited to the minimum necessary.

The restructuring plan includes a set of commitments that PTSB will respect during the restructuring period, that is until the end of 2018. In particular, PTSB will continue to deleverage and reduce costs and will not be able to carry out acquisitions in this period. Moreover, PTSB will take certain actions to facilitate the market entry of competitors. In particular, PTSB will provide competitors with access to certain services, such as cash supply and distribution services, and access to market intelligence. It will also distribute advertising material on behalf of a competitor to its clients to promote customer switching.

The commitments will ensure that the competition distortions brought about by the aid are limited.

This decision gives the final approval to aid measures granted to PTSB, including the recapitalisation measures that had previously been approved on a temporary basis pending the submission of a restructuring plan.