Acquirer unlikely to pay more than €1.1bn, according to Royal Bank of Canada (RBC)
Finance Minister Paschal Donohoe. Photo: Collins
A sale of PTSB is unlikely to command a premium and may value the majority state owned bank at less than the share price before it out itself on the market last month, according to analysts at Royal Bank of Canada (RBC).
In a brutal assessment, they say the bank is unlikely to be attractive to an international bank while a private equity buyer that would be prepared to do the “heavy lifting” of slashing headcount and shutting branches is far less likely to pay a premium given the limited synergy potential.
“We understand Ireland’s attractiveness as a market with high relative concentration and growth. But we do not see the attractiveness of PTSB for an acquirer, and we would be surprised if anyone will pay more than €2 per share (€1.1bn) for the bank,” the RBC analysts wrote in a note.
A price of €2 a share would be lower than where the stock traded (€2.35 each) before its board announced the launch of a formal sale process led by Goldman Sachs on October 30.
The shares shot up after that announcement and have hovered around €3.20 each since in anticipation a buyer would pay a premium to buy the bank as a whole.
RBC points to what they see as tow big drags on the potential price.
PTSB’s revenue very dependent on net interest income in what is now a falling rate environment, and the bank is on course, they say, to have the worst cost-to-income ratio of any EU or UK bank by 2027.
The analysis makes for grim reading for Minister for Finance Paschal Donohoe.
A price of €2 a share would value the State’s majority stake at just €631m, well short of any prospect of breaking even on the remaining shortfall on the cost of rescuing the bank.
Taxpayers have recouped around €2.8bn of the cost of the former Irish Life & Permanent (IL&P) since its rescue, including from the €1.3bn sale of Irish Life back in 2013. A sale at €2 a share, if the Government allowed that to happen, would crystalize a €530m cash loss on the bailout.
The analysts highlight their view that PTSB is not attractive to buy for a cross-border bank, given its relative small size and what they see as a need for radical cost cutting that will inevitably be unpopular.
“In order to generate meaningful cost synergies, we think any acquirer would have to significantly cut headcount and branches. Given PTSB’s largest shareholder is the Irish government (57pc), we do not see how the aforementioned will be politically palatable without onerous stipulations being attached to the deal,” they said.
While some buyer might see the chance to slash costs as an opportunity their ability to capitalise on that is limited unless they already have a bank in Ireland, the analysts think.
“PTSB’s cost problem could be presented as an opportunity with plenty of low-hanging fruit, but
potential synergies will be significantly curtailed if this is not a domestic transaction.”