Financials Unshackled Going Deep - Irish Banks Results Season: Reflections (Edition 1, Issue 4)
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Welcome to Financials Unshackled Going Deep. Today’s note covers the key take-aways from the Irish banks results season - with Bank of Ireland Group (BIRG), AIB Group (AIBG), and Permanent TSB (PTSB) all having reported this week. Plenty of food for thought below and I hope you enjoy the read. The plan for next week’s note is to cover an international / UK theme of interest.
I’ve been quiet on the newsletters front lately due to multiple ongoing projects. This Newsletter will now circulate consistently every Thursday (barring unforeseeable circumstances) and the next pause will be a one-week break for Easter (so, no note on Thursday 9th April). This newsletter is one of a three-part Financials Unshackled Newsletters product suite. The other newsletters are: i) Financials Unshackled Ireland (and Europe) Weekly Essentials & Perspectives (sent via own email on Sundays); and ii) Financials Unshackled UK Weekly Essentials & Perspectives (sent via own email on Sundays). Further product refinements are planned for mid-April and I’ll share details in due course. Thanks for being part of this growing community and email me at john.cronin@seapointinsights.com / DM me in the app if you want to give any feedback or if you want me to add you to the other Newsletter distribution lists (just write Y in reply to this mail).
Sectoral Perspectives
Key Takeaways / Observations: Strength & Growth
In overall terms the three bank management teams focused on conveying an image of strength and resilience (high levels of capital, disciplined underwriting, responsible custodians of capital, conservative by nature) alongside the intent to grasp what is a unique growth opportunity in a high-performing economy that stands out in a wider European context. The two messages - strength and growth, which are entirely valid - sit well together, serving to reassure investors in the stability of these institutions while they push for further expansion.
The broader market has seen significant selling pressure this week in the wake of the Middle East turmoil. From a relative performance perspective, PTSB takes the gong for the best share price performance in the week to date (+1.6%) - with results coming in ahead of consensus expectations, FY26 guidance reassuring, and confirmation that the sale process is “progressing in line with expectations”. AIBG is down 2.5% this week but the market responded warmly to its update yesterday with a modest earnings beat and reassured commentary on the outlook together with no negative surprises. While BIRG delivered a slightly stronger FY25 earnings beat relative to AIBG and its medium-term targets imply meaningful upside to consensus estimates, the initial bewilderment at the Board’s decision to pluck for a higher CET1 target as well as the disappointment with the size of the announced share buyback which was below overseas analysts’ expectations, seemed to outweigh the positive factors for BIRG and the share price is down 7.3% this week.
Capital in focus
The three banks finished 2025 with exceptionally strong capital positions - BIRG’s CET1 ratio was 15.1%, AIBG’s was 16.2%, and PTSB’s was 15.9% (17.5% pro forma for the recalibrated IRB models and a NPE loan sale). BIRG (arguably) increased its CET1 target ratio from >14% to c.14.5%. This got a lot of attention. For clarity, AIBG did not change its CET1 target (>14%) and PTSB lefts its c.14% target unchanged too. Notably, MDA requirements are: i) 11.38% for BIRG; ii) 11.29% for AIBG; and iii) 10.69% for PTSB. I focus here on BIRG but many of the points I make are wider and applicable to the others. There are some specific considerations around PTSB’s capital position that I reflect on in the individual note on PTSB below.
BIRG management emphasised on several occasions that the updated CET1 target of 14.5% is seen as an appropriate level to protect the bank and facilitate growth. Later on, management noted that: i) the buffer to MDA is not out of kilter with European banking peers who typically carry larger buffers than UK banks; and ii) in response to a question on M&A did indicate that additional surplus capital could be helpful in that context. Stakeholders were perplexed - but, like most things in life, there is ‘method in the madness’ so to speak. There is a reason and I think there could be a few different things explaining it.
Firstly, I think there are obstacles (be it Board conservatism and/or other factors) to bringing capital down to target levels - put simply, I think the large Irish banks are treading carefully to avoid any optics of shareholder largesse given potential PR and possible ensuing political ramifications (notably, AIBG’s total distribution was 105% but, in my view, carefully struck at just a small distance above that 100% level to limit the risks of any backlash). It’s hard to know if the decisions on the appropriate quantum of distributions / capital targets are unanimous at Board level across the largest two banks but, taking everything into account (keep reading below), they might well be - even if some executives give the impression that there is a difference of view. As an aside, for what it’s worth, I don’t think for a minute that the reason for BIRG’s higher CET1 target is to store capital for potential M&A (this came up at the presentation) and I would be very surprised if management has anything other than small bolt-ons in Ireland (it is clear that acquisitions will only be Ireland-focused) in mind in this vein.
With those obstacles in mind, my sense is one reason why BIRG elected to strike the CET1 target at this particular level so as to get away from the constant shareholder questions regarding capital distributions (they could have just left it at >14% which is open to interpretation after all and gives them the flexibility they need) - and, even though it was not at or very close to that 14.5% level at year-end (end-FY25 CET1 print was 15.1%), I suspect the intention is to get significantly closer to that 14.5% level in the relative near-term (and we could see a distribution as soon as Summer 2026 if the bank moves to interim buybacks - noting the comment “at least annually” above), especially given management’s clear intent to operate at that 14.5% level as it noted on Monday. Another thought is that maybe this was a compromise at Board level - with an agreement that management can convey it intends to operate at that target level (the vague >14% commitment potentially makes the distributions debate more difficult every time) and plan to deliver on that commitment in exchange for the sacrifice of having to nudge up the target.
However, another point worth bearing in mind is incentives. Irish bankers currently do not receive any meaningful variable remuneration (which is lunacy in my view and a sign of timid Finance Ministers in my view though I suspect it will be neatly corrected around the time of a PTSB sale) and the main source of upside to base salaries for top BIRG (and AIBG) executives is the non-performance-linked fixed share allowance, which carry restricted periods of 5 years (this is all set out in the Annual Reports). These link reward to long-term share price performance (when the shares are eligible for sale, years from now), which is a good thing generally - but, without a mix of short and long-term incentives, it can also foster actions like short to medium-term capital hoarding*, where management is less concerned about share price performance over the coming years (indeed they get more shares if the share price is low!) and is incentivised to focus entirely on what the share price will look like years from now (within reason of course as they presumably want to keep their jobs). I’m not saying that has influenced the CET1 target decision (and, to be clear, I am not suggesting any impropriety whatsoever) but it might be a factor that stimulates executives to continue to ‘play it safe’ for now (especially if my suspicions around bankers getting sorted in a variable pay context around the time of any PTSB sale are right) and it is something to be very conscious of in my view.
* Another possible byproduct of zero management incentives over the years is that it fostered deep conservatism on the part of senior banking leaders, which may have become somewhat entrenched in their psyche. Indeed, they were undoubtedly vetted heavily on this criterion as they went through the interview and regulatory approval processes. It is entirely rational to run as safe a bank as possible (especially given Ireland’s banking crisis during the GFC) when you don’t have skin in the game. If so, any return to variable remuneration could provide something of a ‘jolt’.
Interestingly, it is also worth noting the factors that the BIRG Group Remuneration Committee considered when deciding on the profit share pool (Annual Report, p.105). There are six metrics, none of which include capital return. In fact the strong CET1 ratio of 15.1% was a factor as was the performance of the group in terms of risk management. If I was a shareholder (which I am not) I might rightly think why is there nothing specifically in relation to shareholder delivery here. After all it is the shareholders who own the bank!
On the distance to MDA point, BIRG management’s assertion to the effect that European banks carry higher buffers to MDA is valid in my view (though BIRG’s 312bps buffer is very much at the high end according to the data I have seen) but that is mainly due to structurally lower CCyB levels which means that they have a lower releasable buffer in times of stress - so, I don’t think that is an important reason for the higher CET1 target at BIRG (given its blended Ireland & UK CCyB requirement).
As a final note on this, if the 89% supertax on any Irish resident banker bonuses of >€20k (which I wrote about on 12th September 2024 (link below)) is removed - thereby paving the way for material variable remuneration benefits for executives and other staff, it profoundly changes incentives as I see it. Bankers will get paid more but shareholders are surely likely to welcome this. Bankers will still be conscious of the politics for many reasons but that ultra-conservatism will likely soften a bit over time in my view - which is not to suggest for a moment that one should be worried about reckless lending practices re-emerging (the top bankers have too much ‘skin in the game’ from a long-term upside perspective as well as, in some cases, what appear to me to be potentially wider domestic long-term career ambitions for the 2030s). Of course, the return of variable pay could also drive some modest initial cost inflation but I suspect that will be well-contained and it can serve to put a brake on fixed cost growth in time.
Other Highlights
All banks issued upbeat views on the outlook for loan growth, deposits growth (following a stellar year which saw BIRG/AIBG/PTSB deliver deposits growth of 4%/7%/6%), and, in the case of AIBG and BIRG, AUM growth. The positive prognosis for loan growth and deposit growth is mainly a function of: i) a very strongly performing economy; ii) a favourable outlook for housing completions growth and infrastructure investment which support lending opportunities; and iii) continued household wealth accumulation. There is acknowledgment that there are risks too but my view is that risks have lessened considerably relative to where we were last Spring.
An interesting question came up at the BIRG presentation on the risk to deposit volumes from AI (a question that has cropped up a few times recently) - though the question wasn’t really answered at all in my view. This is a long-term risk in my view and I wrote about this in Financials Unshackled UK Weekly Essentials & Perspectives on Sunday 1st March in a NWG context as follows: “The question arose as to risks of sudden deposit outflows / large-scale migration owing to AI agents calling into question retail funding stability. Indeed, it was interesting to read here about the FCA’s recognition of that risk in the regulator’s calls for input for The Mills Review (on 27th Jan last): “We may be approaching a genuine inflection point in how AI technology interacts with financial services. Advanced, multimodal and agentic AI systems could reshape market dynamics, alter how financial products are designed and distributed, and transform how consumers engage with firms. In some scenarios, there could be rails to enable machine-readable, programmable forms of digital assets (or money) to be exchanged and settled in real-time, with AI potentially providing decision-making autonomously.”. I wrote about this in considerable depth almost a decade ago, noting that deposit platforms will likely evolve in due course and that it is not hard to imagine algos enabling the migration of deposits across banks in real time depending on best rate / optimal terms (I was thinking about Open Banking and advanced data analytics on recall, rather than AI specifically). So far though, despite the ability to do this (in part at least) through Open Banking technology, CFO Katie Murray noted there hasn’t been any notable impact and that AML processes in terms of new account openings remain an issue. Indeed, the FCA was clear that risks associated with consumer trends such as those flagged above on the interaction of AI technology with the financial system will be a key focus of The Mills Review. That’s not to say that regulation will block potential disruption but, for what it’s worth, while I do expect there will be an ‘industrial evolution’ in deposit markets in due course, I wouldn’t be holding my breath for any significant changes in the relative near-term.”.
Key support factors for income growth include structural hedge income tailwinds (for AIBG and BIRG), price discipline, super low-cost deposits, and AUM growth. Very little chat on the potential government-led savings account initiatives (though there continues to be significant media focus) but executives indicated their support - with the BIRG CEO noting that the bank would be supportive of an ISA-type product (is this what is coming? - if so, this would suit the banks very well indeed).
Asset quality remains in excellent shape. NPEs hover between 1.4% (PTSB) and 2.2% (AIBG and BIRG). ECL coverage levels are 1.4-1.6% territory and the vast bulk of loans sit in Stage 1. Notably, 26% (€294m) of AIBG’s provision stock is represented by PMAs.
Remuneration has increased across the sector though packages appear very reasonable relative to international / other Irish plc norms with scope for more upside for executives via variable pay. PTSB executives do not benefit from any fixed share allowances and I expect there will be some effort to see that they receive fair variable compensation for the years of ‘hard yards’ once we know the outcome of the sale process.
I turn now to observations on the individual company updates - though some of that is covered sufficiently above and I don’t repeat it below.
BIRG: Mixed Messages
Bank of Ireland Group (BIRG) reported FY25 results for the 12 months to 31st December 2025 as well as a 3-year strategy update (2026-28) on Monday 2nd March. Management presented in upbeat form through the presentation but I felt the Q&A session lacked a certain smoothness / gravitas and was disappointing in terms of some of the responses which were light on detail in my view - with the initial comments in response to some of the questions sounding to me like scripted commentary that just repeated some of the key messages that had already been conveyed during the presentation. Anyway, without further ado, here are some of my views on select aspects of the update.
Financial Performance / Position
Strong financial performance again in FY25 with Profit Before Tax (PBT) of €1,393m coming in 5.4% ahead of consensus, though the beat was mostly a function of lower impairment charges versus consensus - with a modest income beat and costs coming in marginally higher than consensus estimates (with below-the-line costs slightly higher too). Supported by growth in Irish loans (+c.6%), mostly residential mortgages - though gross loans were broadly flat y/y due to deleveraging and adverse FX impacts offsetting the Irish loan growth. More importantly, deposits were +4% y/y (+5% in constant currency) to €107.5bn, a key Net Interest Income (NII) underpin. BIRG finished the year with a CET1 capital ratio of 15.1% after accounting for total distributions of €1.2bn (dividends €667m, buyback €530m), representing a 100% total payout ratio. While the total quantum of the payout was just marginally below consensus estimates, the buyback element disappointed as it was almost €100m below consensus for €618m. This, together with the Board’s decision to increase the target CET1 capital ratio to 14.5% (from >14%, which most investors have, in my experience, taken to mean 14% flat) - and which I discuss above - overshadowed the better-than-expected FY25 financial performance (but, that said, my strong sense is that market expectations were stronger than consensus expectations and a beat on impairments never gets investors very excited) and the medium-term targets and prospective upside thereto (e.g., eps upside from buybacks, reversal of IRB model scalars, etc.).
Updated Medium-Term Guidance
BIRG issued fresh financial targets for FY26-28 including: i) building to >16% Statutory RoTE in FY28 (up from 12.8% excl. UK motor finance provision in FY25); ii) CIR in mid-40s by FY28 (with ambition for CIR <45% by FY30); iii) dividend payout of c.50% and surplus capital return “at least annually”; iv) loan CAGR of c.4%; v) deposits CAGR of c.3%; and vi) AUM CAGR c.10%. I personally welcome the move to shift restructuring costs above the line from FY26, so CIR targets embed these costs (and this move is also helpful in a reported RoTE suppression context when one considers future political considerations - as an aside, I expect AIBG to recalibrate its RoTE calculation methodology when it updates its medium-term targets in December to be based off actual capital rather than assumed optimised levels). Doing some math on the targets versus consensus suggests consensus PBT upgrades of c.6%/4% are appropriate but it was clear, as the presentation ran on, that there are some key sources of upside to the targets.
Some thoughts on income - and on the UK
Positive to see loan asset spreads expanding, the recycling of excess liquidity into bond portfolio holdings appears to be executed with appropriate conservatism (incremental purchases in FY25 added at an average spread of c.50bps versus portfolio stock spread of c.38bps), and the NII sensitivities have been increased marginally.
One point which I have written about before - and which disadvantages BIRG relative to AIBG - is the UK deposit costs, which were €328m in FY25 (excl. C&C element) which represented c.54% of total deposit costs (despite representing less than 10% of average deposit volumes in 2H25). BIRG is committed to the remaining UK business (apart from what is officially being deleveraged) and, naturally, those costs will come down a bit in time if we see more rate cuts in the UK. However, market expectations are for a structurally higher rate environment in the UK versus the eurozone - and the Board has to be debating the desired long-term commitment to the UK with this particular point in mind given retention is unlikely to compare favourably to the return on redeploying capital towards Irish lending (if possible) / share buybacks. Something that might come up in the future I suspect, especially given some investors favour AIBG over BIRG given it is a ‘purer play’ on the Irish market - though it’s very complicated with a notable funding gap as well as potential questions around the true level of potential associated ongoing operating cost takeout).
Also, a good question was asked at the earnings presentation about the rapid growth in consumer lending in FY25, which the CEO noted was a measure of consumer confidence. But the growth was almost entirely in the UK (£1.7bn of new lending in FY25, up from £1.2bn in FY24 - taking the stock of UK consumer loans to €3.1bn, +€0.5bn y/y) where (reported) consumer confidence has been depressed for many years (as this week’s Q4 2025 Household Finance Review published by UK Finance highlights) and one would, in my view, have to be cautious about potential impairments in this book in the future (and that rapid growth seems a bit inconsistent with the safe low-risk bank message).
Costs are well-managed but is BIRG investing enough?
BIRG is guiding c.2% costs growth in FY26 and just a 1% CAGR from FY26 through FY28. While the FY25 CIR headline print of 49% is 5pps ahead of AIBG’s 44%, it is, arguably, an unfair comparison from an efficiency perspective given the substantial difference in LDRs (BIRG: 77%, AIBG: 61%) - which I touched on in this note on BAWAG on 12th February last (though one additional point in AIBG’s favour here is that, while it likely doesn’t incur much incremental cost to recycle its deposits into liquid assets, it would be expected to have a materially higher deposit servicing cost line than for BIRG due to its materially larger deposit volumes). On the investment front, it’s hard to know are the banks investing enough - and, while my intuition (taking everything I know into account), is that the answer is likely a no when compared to the likes of a UniCredit or a BBVA (that view reflects everything I observe in the market as well as the lack of pressure there is in any highly concentrated market to spend significantly on innovation), all are now very clearly conscious of the opportunities that AI can bring and seem to have started to invest accordingly - and as the UBS CEO recently commented (albeit in a slightly different context) that it is “pursuing a strategy of being a fast follower”, even if they have been a bit late there should be time to address this and they have the resources to do so it appears. For what it’s worth, AIBG appears to me to be the furthest ahead and it was interesting to hear more about the features its new app will include - but BIRG will roll out a new app this year too and PTSB gave some colour as well on the changes it is making.
In overall terms though my observation is that BIRG discloses very little detail in relation to AI initiatives - for example, in the section on the role of digital banking in group strategy in the Annual Report (p.210-212), it says “The Group sees AI as a key part of achieving its strategy for 2030. There has been tangible AI progress to date with a clear plan to scale benefits.”. But when you read on there is no meaningful detail on specific AI initiatives (for example, within the list of initiatives set out on p.211). I don’t have all the information. But if I was a shareholder I’d be asking for more colour at least - referencing the information that some of the UK banks have provided.
AIBG: Low Risk High Yielder
AIB Group (BIRG) reported FY25 results for the 12 months to 31st December 2025 as on Wednesday March. It was a slick presentation in my view with a more matured tone than I have observed at times in recent years - from a management team that displays high levels of confidence and conviction in its decisions, in its messages, and in its delivery. However, it should be noted that while AIBG management elaborates extensively when asked questions on the Q&A, it does limit the number of questions unlike its peers. Here are some of my views on select aspects of the update.
Financial Performance / Position
Strong financial performance again in FY25 with u/l Profit Before Tax (PBT) of €2,243 coming in 3.1% ahead of consensus, more modest than BIRG’s beat but it was a higher quality beat as income was better and costs were lower than what consensus had modelled - with a partial offset in the form of slightly higher impairments than consensus. Supported by 2% growth in net loans (slightly below guidance but I don’t think anyone cares and, notably, gross loans were +3% on a u/l basis) and, more importantly, a staggering 7% growth in deposits. AIBG finished the year with a CET1 capital ratio of 16.2% after accounting for total distributions of €2.25bn (dividends €1.25bn, buyback €1.0bn), representing a 105% total payout ratio. Medium-term targets were unchanged as expected - these will be refreshed (as is customary every three years) in December 2026. While investors are likely irritated that AIBG (and other Irish banks) aren’t returning more capital at least there were no negative surprises and investors have become accustomed to this dynamic by now (it didn’t even come up on the Q&A). The update was understandably well received by the market.
Mortgage flow share - is AIBG playing the long game?
AIBG delivered Irish mortgages flow share of c.30% in 2025. Despite BIRG’s audacious claim that it has a “right to win” in Irish mortgages, AIBG’s CEO calmly pointed out that it has a preference for direct-to-consumer relationships and is the leading player in that sphere (with 46% share - as noted in the slide deck too) - and operates in the broker market through Haven. I think this is an incredibly important point that might not get the attention it deserves. I wrote almost a decade ago about how I believe advanced data analytics will drive customisation in the commodity-esque mortgage market in time giving those with better data a strategic advantage in pricing risk and delivering products more attuned to customer preferences (underwriting criteria and products could become so much more sophisticated with more customer data analysis) and we have more recently heard from Lloyds Banking Group (LLOY) particularly in terms of its strategy to leverage its AI investments to reduce its dependence on intermediaries in the mortgage market (even parking my customisation point, leveraging channels to more easily directly target consumers will drive this anyway). No analyst is going to radically change their financial forecasts much with this dynamic in mind just yet but I think this is where the industry is heading and, if so, AIBG is outfoxing BIRG strategically here - with the potential for this to be a highly impactful in a future (longer-term) earnings capability context. Furthermore, AIBG (and, for what it’s worth, PTSB too despite that bank seeing a nice uplift of >3pps in its mortgage flow share last year) is clear that it is not chasing market share - which is reassuring to investors. The growth will come when they want it. As an aside, if any bank has a “right to win” in ROI mortgages it is surely AIBG, whose ROI deposit volumes substantially outnumber BIRG’s (and PTSB’s). The foundations of AIBG’s deposit-gathering strategy seeded over a decade ago with the infamous ‘omnichannel strategy’ have paid dividends - but its customer proposition, which has been refined considerably since then, continues to deliver, exemplified by its market-leading deposit inflows in FY25.
Some thoughts on income
The market likely was pleased with the news that AIBG has, in recent days, elected to upsize its structural hedge by €10bn, sustaining its long duration - with the new hedges bearing a weighted average life (WAL) of 5.0 years (and the overall average duration of the swaps expected to be 5.0 years by end-FY26). While investors philosophically have a preference for BIRG’s mechanistic approach (and prefer not to rely on bank managers to play interest rate traders) the reality here is it does, once again, look to be good timing given the potential trajectory of official rates now. Indeed, while AIBG’s rate sensitivities increased quite significantly relative to the end-1H25 disclosures, the CFO commented on the call that, given the hedge upsizing, those will have reduced significantly now (were we to rerun the rate sensitivities as of today’s date, say).
Costs are well-managed - is AIBG investing enough?
I’ll keep this short to avoid repeating myself but AIBG is managing costs well. It is more efficient than BIRG on the face of it (materially lower CIR) but that comparison unfairly penalises BIRG for having a ‘more efficient’ balance sheet. That said, the reality is AIBG is the undisputed No.1 in deposits and unless official rates are going right back down to zero and/or we are going to see massive deposit outflows to uses or entities that are not owned by the domestic banks, it seems likely that AIBG management will be perfectly happy to operate with a ‘less efficient’ balance sheet for the foreseeable future. CIR is what matters at the end of the day.
It is somewhat reassuring to note that AIBG is upping its investment spend to c.€400m p.a. (this had been running at c.€300m p.a. from FY22 through FY24 and increased to c.€350m in FY25) while marrying this with a costs stability message. Indeed, FY25 operating costs were up just 1% y/y (versus 3% y/y guided) with 2H performance suggesting a positive run rate (and management noted that it expects c.3% headcount shrinkage p.a. going forward, mostly via natural attrition). While my sense, as noted above, is that the Irish banks are probably not investing heavily enough, AIBG has provided some reasonable detail on its AI initiatives of late (more than its peers but it’s still incredibly difficult to really know what is going on ‘inside the engine’ looking from afar I must admit) and it is somewhat reassuring to see management commit to resizing the investment spend envelope.
Commitment to Climate & Infrastructure lending
The CEO opened the results call with a comment that AIBG remains resolutely committed to the sustainability agenda, which seems likely to bounce back at some point (at least I hope for wider reasons…) and continues to progress behind the scenes. On the €6.3bn Climate & Infrastructure book specifically, management noted that the scale of the opportunity is enormous and that FY26 is off to a good start from a lending volumes standpoint, with some of the deals that were expected to close in December tipping into early 2026. The issue with this book is returns. Very simply, looking at the ‘Contribution before exceptional items’ divided by average gross loans for each of AIBG’s business segments, shows that it is a serious laggard in this respect - and, therefore, a drag on group returns. Now FY25 impairment charges in that book were elevated relative to historical levels - and this appears to be somewhat isolated for now but has likely captured some investor focus nonetheless - but even if you remove the €71m impairment charge in its entirety and recalculate returns on average gross loans, the returns are not very much more than 50% of what the other segments are generating despite much higher average risk weights (though there is likely some relief coming here via SRTs as the CFO discussed on the call). On the face of it - and I recognise that this is just one way to approach the analysis - it does not appear to be a good use of capital. Maybe I am missing something - if so, then AIBG should open up more in my view on how this business will earn its cost of capital in due course.
The best bank in Europe?
The CEO noted on the call his ambition for AIBG to become the best bank in Europe, noting that it will be stakeholders who decide that - this ambition doesn’t appear anywhere in the results documentation as far as I could decipher and is, perhaps, a taster for the scale of ambition we will learn of come the medium-term targets update in December (Hunt was talking on that topic when he made this comment). I’m all for bold ambitions - and AIBG is making strong strides, is delivering world class returns (25.0% adjusted RoTE in FY25), and appears to have a unique opportunity given the strength of and outlook for the Irish economy - but a key underpin for the currently enormous returns is the ultra-cheap and sticky deposit base, plain and simple. While it’s best not to take these kind of comments too seriously (and maybe it was just a poke at BIRG for its “right to win” comment), the danger is that successive years of very high returns can drive overconfidence for the wrong reasons. I’m not saying that’s the case. And that’s not to say AIBG doesn’t have a fantastic story to tell. Nor am I suggesting the deposits will get disrupted. But things can change.
Chair comments on variable remuneration issue
It was good to see the Chair Jim Pettigrew pick up on the variable remuneration issue in the Chair’s Statement in the Annual Report as follows: “…the remaining remuneration restrictions, which effectively prohibit payment of variable remuneration above €20,000, given the punitive tax rules applying, perpetuate the uneven playing field for the Group in competing for experienced executives within and outside of the banking sector. This also prevents the Board from more closely aligning the interests of its Executive Directors and senior management with those of shareholders, which is a central plank of good, effective governance.”. His comments are entirely valid in my view and it is important that the appropriate person in these institutions call this out instead of living in fear of upsetting someone somewhere.
PTSB: Steadily Progressing
Permanent TSB (PTSB) reported FY25 results for the 12 months to 31st December 2025 this morning. Here a just a few key observations (it is my intention to write a more detailed piece on PTSB later in March):
PTSB’s FY25 u/l Profit Before Tax (PBT) of €175m was well ahead of consensus. Main reason for the beat was a net impairment release of €39m but there was a beat on the income line too and costs were lower than consensus estimates. No negative surprises in the FY26 guidance either with the foundations for the positive trajectory consistent with management’s previous commentary (lower cost of deposits and mortgage refinancing supporting NIM accretion, discipline in a mortgage pricing context, strong cost management, rolling out AI capabilities, loan book diversification through strong growth in non-mortgage lending, completion of the IFRS 9 review of mortgages with other books to follow, refreshed IRB models, etc.).
I still believe the ingredients are there for stronger medium-terms returns guidance. But it would likely require baking in upside from capital and funding optimisation, etc., which management teams tend to be understandably reluctant to do. I previously noted that I thought that we would see a further upgrade today but I stand corrected - and I can understand why management wouldn’t over-commit right now. After all any potential buyer of the business, which is going through a Formal Sale Process (FSP), will do its own detailed workings on what it expects to deliver.
PTSB announced its first dividend in 18 years today, a €10m token dividend which should not be seen as a run rate. The slide deck notes that “the Board does not plan to recommend further distributions in light of the ongoing FSP”. My thoughts on this:
There had been a view that there was a possibility that the bank would dividend back its surplus capital prior to the completion of the share sale. That could still happen depending on what gets agreed with an acquirer (assuming the business is sold). However, unless there was a long queue of bidders willing to ‘pay up’ it makes no sense to do anything yet - and, if there is something, it will, in my view, be at completion - choreographed with the sale.
The surplus capital position could be attractive to an acquirer, reducing the size of the equity cheque it needs to write. So, PTSB might need to come with most (or all) of it. While it should just mathematically mean a higher price (with excess capital valued at 1x) things don’t always work like that in practice and the Board will know that.
A buyer may have concerns that it needs more capital than meets the eye given peer bank behaviour / regulatory unpredictability. Indeed, PTSB’s own target CET1 is struck at 14.0%, which is a whopping 331bps above MDA.
If the Board was to do this ahead of a sale, it would only serve to reduce the price paid for the business in my view - it has to be done in conjunction optically; otherwise the Board and the State could have egg on their face. There would be a higher chance that the sale proceeds would disappoint if there were two separate ‘liquidity events’ for the shareholders in my view. And at the end of the day, the sale is an expectations management game from both the Board’s and the State’s standpoint as I see it.
While it was something of a relief to note the CEO’s comment in the Annual Report (within the CEO Review) that “The FSP is progressing in line with expectations…”, it doesn’t really tell us anything either - though he also characterised the FSP as “a positive development for PTSB and evidence of the Bank’s position of strength in the Irish retail banking market”. Second round bids are due at the end of March according to press reports so let’s see what comes.
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