Permanent TSB (PTSB) swung into a €267 million profit before tax last year, buoyed by a net accounting gain from the purchase of loans from Ulster Bank and an increase in interest income as official central bank rates moved higher.
The company said on Wednesday that it made a €362 million negative goodwill gain, or what is often referred to as “badwill”, as it acquired €5.2 billion of Ulster Bank mortgage assets in November at a discount to their fair value.
However, that was partly offset by €123 million of costs and impairment charges on the Ulster Bank transaction, which also involved the purchase of 25 branches, as well as a further €17 million of expenses relating to restructuring and dealing with legacy legal cases. PTSB is set to complete the taking on more mortgages, small business loans and an asset finance business from Ulster Bank in the coming months, bringing total loans being acquired to €6.7 billion.
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PTSB’s profit for last year compared with a loss of €21 million posted in 2021.
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Chief executive Eamonn Crowley said that 2022 was “a transformational year for Permanent TSB, as we combined the once-in-a-generation opportunity of acquiring certain elements of Ulster Bank’s retail, SME and asset finance businesses in the Republic of Ireland with an outstanding business performance”.
Net interest income increased 16 per cent to €362 million as the European Central Bank (ECB) ended an era of charging banks negative rates for excess deposits, PTSB started to pass on some of the ECB’s increases in its main rates, and it benefited from income from the Ulster Bank loans towards the end of the year.
Underlying operating expenses also grew by 16 per cent, to €344 million, as it took on 250 former Ulster Bank staff and dealt with wage inflation among other costs.
New lending at the bank grew by two-fifths to €2.8 billion, while it increased its new mortgage market share to 18.5 per cent from 17.8 per cent at the end of 2021.
PTSB said that it expects its core business to continue to grow and remain strong in 2023, “notwithstanding uncertainty in the macroeconomic backdrop”. Chief financial officer Nicola O’Brien told reporters that the lender had not seen any uptick in borrowers going into default as a result of the ongoing cost-of-living crisis.
The bank sees the Irish mortgage market growing to €14.5 billion from €14.1 billion, supported by an active, but slowing switcher market and house price growth of about 4 per cent.
“Net interest income is on course to continue growing due to loan book growth, the changed interest rate environment and from the elimination of costs associated with carrying excess liquidity when yields were negative,” it said.
Shares in PTSB jumped 4.6 per cent to €2.72 in Dublin, as investors cheered the bank’s improved outlook for the company’s profitability, relative to shareholders’ equity investment in the business. The bank now sees its return on equity rising to 13 per cent medium term, compared to a previous target of 12 per cent and a result of 0.6 per cent for last year.
