DBRS: PTSB Trend Remains Neg after Stress Test Results; Non-Gteed LT Debt Confirmed at BB (low)

DBRS Ratings Limited (DBRS) has today confirmed the ratings of permanent tsb p.l.c (PTSB or the Bank), including Non-Guaranteed Long-Term Debt and Non-Guaranteed Long-Term Deposit Ratings at BB (low). The trend on all non-guaranteed ratings remains Negative. DBRS also confirmed the Bank’s intrinsic assessment (IA) of B. Given PTSB’s significance in ensuring competition in the Irish retail banking market, the continued support of the Irish government for the Bank’s restructuring plan and the EUR 2.7 billion capital infusion provided to the Bank in 2011, DBRS continues to view PTSB as systemically important within Ireland (categorised as SA-2), and the ratings therefore incorporate two notches of uplift from the IA.

The Negative trend on the Bank previously incorporated the extremely high level of impaired assets, the challenge the Bank faces in returning to sustainable profitability, the constrained capital position and the further restructuring that is still required to enable the Bank to return to public ownership, including the approval of its EU Restructuring Plan. The trend now also takes into account the Bank’s EUR 854.8 million capital shortfall identified in the ECB’s Comprehensive Assessment (CA)’s Adverse Stress Test. DBRS notes, however, that the Adverse Stress Test was completed using a ‘static’ balance sheet at year-end 2013, and so did not take into account the progress the Bank has made to date in 2014, including asset sales and increased pre-provision financial performance, or the improving Irish economic environment. DBRS also acknowledges that the Bank’s provisional capital plan, which is required pursuant to the outcome of the CA, proposes that over 80% of the capital shortfall has already been met as a result of the asset sales, the improved pre-provision financial performance, and the EUR 400 million par value of Contingent Convertible (CoCos) instruments, which were included as part of the Bank’s recapitalisation in 2011. Although DBRS would expect the Bank to be able to raise the extra capital required in the nine-month timeframe allowed by the ECB, execution risks remain. As a result, DBRS will continue to closely monitor the Bank’s progress.

Any upward movement in the senior ratings is unlikely until there is approval of the Bank’s EU Restructuring Plan (which is now required to be updated), the capital shortfall identified by the CA has been met, and there is further improvement in the funding profile, including successfully addressing the large level of maturities in early 2015. Restoration of profitability along with sustained improvement in credit performance would also be viewed positively. An inability to return to an acceptable level of profitability within the anticipated timeframe, which may indicate that the franchise is too weak to compete effectively in the Irish market, would be viewed negatively, as would credit losses that materially impact capital levels. A downgrade of the sovereign rating or a change in DBRS’s opinion that support from the Irish Government has diminished, or that the Irish Government is no longer willing or able to support the Bank would also be viewed negatively. The ratings on the Government Guaranteed debt are directly linked to DBRS’s rating of the Republic of Ireland and as such, any changes in this rating would be reflected in the rating of the guaranteed debt.

Notes:
All figures are in euros (EUR) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria: Support Assessment for Banks and Banking Organisations (January 2014) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013).These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company reports, the ECB, the EBA, and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Ross Abercromby
Rating Committee Chair: Alan G. Reid
Initial Rating Date: October 27, 2009
Most Recent Rating Update: July 7, 2014

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