Financials Unshackled Special Edition | Issue 67 (31st Oct 2025) - Banking M&A: PTSB In Play

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Welcome to Issue 67 | ‘Financials Unshackled Special Edition (31st Oct 2025)’. I noted in ‘The Financials Unshackled Weekender’ of 26th October that I will not be publishing a Weekender on Sunday 2nd November - and am instead publishing a note today. I have decided to run with a Special Edition, focused on Irish banking M&A given developments at PTSB this week - instead of the usual recap of the week’s developments. I will publish a ‘Financials Unshackled Weekly Briefing’ on Sunday 9th November covering next week’s developments.

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🔎 Reflections on PTSB Sale Process 🔎

Background

PTSB is now ‘in play’

Permanent TSB (PTSB), Ireland’s third largest domestic-centric retail bank, published its 3Q25 trading statement as scheduled* on Thursday 30th October - and also announced that the Board is commencing a Formal Sale Process (FSP). The shares jumped by >20% in trading yesterday and the bank’s market cap is now €1.6bn. There is no prescribed timetable but the CEO noted on yesterday’s analyst/investor call that the Board expects that, to the extent it identifies a bidder, a recommended offer could be announced in 1H26.

* Similar to Bank of Ireland Group’s (BIRG) IMS of Wednesday 29th October, PTSB’s trading statement was reassuring from a loan growth, a deposit growth, an asset quality, and a full year guidance perspective. No negative surprises and it was positive to see a 25bps reduction in PTSB’s P2R.

State shareholding considerations

Note that the Irish State owns a 57.4% shareholding in PTSB, which is its only remaining economic interest in the Irish banking sector. This is currently worth €918m (Friday close). The State invested €3.9bn in total in PTSB as this page on the Department of Finance’s website shows - that web page notes that the State had recouped €2.7bn of its investment as of 31st March though it has come to my attention (late on Friday afternoon at a time that appears to be too late to check it with the company) that PTSB management noted on yesterday’s call with reporters that the State has recouped around €2.8bn. The State has recouped all of its investments in both Bank of Ireland Group (BIRG) and AIB Group (AIBG) - note the RNS this morning in relation to the cancellation of the warrants in the latter context. Indeed, I suspect the State is keen to recoup all of its monies invested in PTSB. The takeout price therefore needs to be between 347-379c per share (current price: 290c, so, a 20-31% premium to today’s closing price) for the State to recoup its entire investment - I will look to firm up on the exact number next week. To be clear, I am not suggesting that the State categorically won’t sell at a price below this level - but it’s something to be aware of.

Why Now?

Questions raised in relation to the timing of the Board’s decision

Lots of questions amongst the analyst community as to why the Board has elected to take this action now - particularly given PTSB management is essentially executing a turnaround plan and is awaiting the outcome of the regulator’s review of its IRB mortgage models, which could lead to quite a sizeable reduction in risk weights (which would be beneficial from a RoTE and a surplus capital crystallisation perspective).

There is surely some comfort that there is a level of interest

While the CEO noted on the call that there have been no approaches, there has likely been some intelligence gathered to the effect that an identifiable third party / parties could be interested - and, instead of entering into formal discussions, the Board has decided to cast the net far and wide in a bid to attract the entire universe of potential buyers, thereby maximising competitive tension. It would be unusual to launch a sale process without any indication of a level of interest from third parties.

Government has clearly decided it is time

That being said, the government has clearly decided it’s time to get on with achieving a full exit from its banking investments. I have previously written that a sale of the company would represent a ‘neat solution’ for the Finance Ministry and I suspect that has been their thinking for some time. However, consistent with standard political sequencing (to maximise political capital from each action and to preserve focus on one thing at a time), the State needed to exit its investment in AIB Group (AIBG) first (indeed, there could also have been concerns that running a parallel sale process while the State was selling down its shareholding in AIBG could prove detrimental to the value of AIBG stock). A majority State shareholder who is willing to sell was presumably a key factor that was taken into account in the Board’s determination.

PTSB should have more clarity before a sale is struck

While there is surprise that the Board has elected to announce this ahead of the outcome of the Central Bank of Ireland’s (CBI) review of PTSB’s risk weights, the submission was made to the CBI on 30th May last, it relates to a review of existing models (i.e., it does not relate to new model approvals, which would typically take much longer), PTSB’s 3Q25 trading update and its 1H25 interim results update noted that the project is progressing, and, importantly, the CFO noted on the analyst call yesterday that it should “align”. This last comment suggests that PTSB expects to announce the outcome of the review before it agrees a final price with any bidder. While there can never be any guarantees it suggests to me that management is very confident that the regulator will issue its approval for the IRB model parameter changes by the end of 1Q26 at the latest - otherwise, it would call into question the Board’s judgment in arriving at a decision to formally put the bank into an offer period now (and, for what it’s worth, regulators are not immune to pressure either in my view - and, given accusations of regulatory overreach, I suspect the CBI may feel some ‘heat’ to arrive at its decision within what is a reasonable timeframe). As a parting note on this particular point, it is also possible that the Board / majority shareholder think that PTSB could present as a more value-compelling opportunity to potential bidders now (given the relatively depressed current P/TNAV trading multiples and the prospect of gravy tomorrow it screens rather well) rather than wait until the IRB approvals have been received, at which stage the process will ideally have some entrenched interest and good momentum.

Other elements of the ‘turnaround story’ are also relevant

There are other things going on at PTSB as well - continued cost takeout and a review of the IFRS 9 models, for example. On the costs, it should be fairly straightforward for prospective bidders to model what the shape of the cost base should look like (based on management actions taken and committed) over the next few years - with PTSB already clarifying that annualised savings from the voluntary severance scheme will start to come through in 2H25 and that the full year impact will be felt in FY27. Indeed, bidders will reflect carefully on what cost savings they can deliver too. On the IFRS 9 models, the CFO remarked (on the 1H25 results call) that the ambition was to complete this work by year-end. Even if it slips a bit, it feels like it ought to be on track for completion in 1Q26 ahead of agreeing any final price with a bidder.

Furthermore, PTSB has pointed to inefficiencies in its capital stack - and has begun to take corrective action, with a RNS earlier this week noting that PTSB will redeem €125m of AT1 securities on 25th November. Separately, it would also not surprise me if management revised down its toppy CET1 capital ratio target of 14.0% at year-end too especially given that its CET1 requirement - excl. P2G - has now reduced to 10.69%. That being said, it raises the question as to why management didn’t do this at 3Q (maybe later sale process momentum ignition considerations are a factor in the thinking!). I would also note that I asked a question on the 1H25 earnings call on this target and the language used in the response felt to me like the target is partially regulatory-driven (P2G?).

Of course management might want to leave itself some room in the event that PTSB fails to secure a bidder at a sufficiently attractive price - rather than putting all its chips on the table on Day 1.

Timing might not be as bizarre as it first seems

All in all, while I can understand why some are perplexed by the timing of this decision - which is, admittedly somewhat bizarre on the face of it when there are a number of near-term wins on the horizon, if management is very confident that it can secure lower IRB risk weights / complete the IFRS 9 models review ahead of finalising a price with a bidder(s) then it is, arguably, not a bad time to start smoking out buyers. Management has also laid out details around capital stack optimisation and bidders can take a view on what is an appropriate CET1 ratio target.

While there is a view amongst many that management could be pushing harder from a cost reduction perspective, there may be constraints in that respect at the moment. A potential trade acquirer - or indeed, private equity - will spend much time doing due diligence on the cost base during a sale process anyway and will form a view as to what cost efficiencies they can capture. While bidders don’t tend to pay for synergies / the restructuring work that they purport to do, to the extent there is ample competitive tension in a process, the perceived cost extraction opportunity can help drive a higher price (just look at the multiple paid by Santander UK for TSB as a case in point).

Indeed, while it is, mathematically, more attractive for non-majority shareholders to see a series of directed buybacks (given where the stock has been trading), this would be an elongated State exit process and, were market conditions to worsen at some point, could see the State holding a meaningful shareholding in PTSB into the long-term.

In theory, PTSB should attract interest

There is presumably a level of known interest

As noted above, it seems unlikely that the Board is not aware of any interest before formally announcing a sale process. Putting a company into play can have destabilising effects for employees and other stakeholders and it would seem reckless to do this in a non-emergency situation if there is not a known level of interest.

But no one has pounced yet

That being said, the State has owned a majority shareholding in PTSB for some time and has been very clear, for a long time, that it does not see itself as a long-term holder of bank equity. And PTSB has been a known turnaround play for some time and has been trading at depressed trading multiples relative to peer European banks due to its weak returns profile - so, to anyone acquisitive looking across markets for opportunities (which banks routinely do to state the obvious) it screens as a cheap play. And yet no formal approach has emerged it seems. That said, putting the company officially into play will force those who may be tempted to have a look and make a call as to whether they want to swoop before the opportunity disappears.

Attractive market characteristics are supportive

One can see the sense in casting a wide net here. PTSB is a uniquely positioned third force in a highly profitable, highly concentrated banking market. The Irish economy is in strong shape, domestic loan growth (mortgages particularly, which is PTSB’s mainstay) and deposit growth are running at a decent clip, there is a structural shortfall of housing supporting both mortgage demand and price stability/growth, deposit costs are literally on the floor with the vast bulk of deposit product sitting in overnight accounts that yield little to no interest, balance sheets have been tidied up, and government has been supportive of the sector’s profitability (no limits on DTA usability in contrast to the UK, levies are relatively light). It is not often that an opportunity springs up to take out one of the three banks that are of a meaningful size in a country. However, Ireland’s small size and PTSB’s relatively small size (c.€30bn total assets) mean that some players will determine it’s not a sufficiently significant prize to warrant getting involved.

Other considerations

The main underpin for PTSB’s nearest rivals’ (AIBG and BIRG) substantial returns profiles has been low deposit costs and reduced competition rather than customer / product innovation, for example - so, an experienced player might see a medium-term opportunity to leverage its experience and muscle in to drive meaningful share gain.

It is also worth remarking that PTSB, in my view, also presents as a classic PE play. As noted above, there is a sense that management could have been much more ambitious in its cost extraction targets - one could see PE funds look at an outsized cost rationalisation opportunity (involving significant further headcount reduction, branch closures) alongside a substantive technology investment programme to drive operational process efficiencies.

Who Might Bid?

Trade buyers likely to be the preferred choice

While PTSB presents as a classic PE play in my view, to the extent that another bank takes a strategic long-term view of the opportunity to command a significant position in the Irish market, it is likely to be capable of paying a higher price than PE would be prepared to. My gut is that this is what the Board wants - and the Board will also be acutely aware of the likely political resistance to PE acquiring an Irish bank, taking out the State’s shareholding in the process. Ultimately I do not believe that the State would be prepared to sell its majority shareholding in the bank to a financial buyer though, of course, they won’t say that (remember that this is a country in which mainstream politicians routinely label private capital firms as ‘vulture funds’ despite their central role in Ireland’s economic recovery post-financial crisis). It is my view that the Board will not recommend a financial buyer to the State. However, I strongly expect that they will be invited to participate in the process and will be used to drive competitive tension - with everyone in a decision-making role deferring a call on their actual suitability until a more convenient time.

Which trade buyers could be interested?

For completeness, I just want to note that AIBG and BIRG should not be expected to participate in the process owing to mortgage market and deposit market share concentration factors - put simply, there is no way that they could get through a CCPC competition review in my opinion.

Bankinter (market cap c.€11.7bn) has a presence in Ireland through Avant Money (c.6% mortgage stock share; in pilot phase from a deposit product rollout perspective with an ambition to become self-funded in Ireland). CEO Gloria Ortiz noted on the 3Q earnings call that “…with respect to inorganic growth, well, our appetite is very, very low. As you can imagine, we are an organic grower. We have always grown organically in the different businesses and geographies where we have the capabilities, and this is what we are doing in Ireland, and this is what we will continue to do in the future.”. Notably, these comments were made a few days after a speculative article appeared in The Sunday Times, arguing that the time was right for Bankinter to swoop on PTSB. While this pours cold water on the media speculation, like any CEO Ortiz is careful enough in her language not to rule anything out definitively. Indeed, I suspect Bankinter will participate in the process and may have an interest in accelerating its growth in the Irish market - and defensive considerations in respect of its ambitions here might be a factor in Bankinter’s thinking too.

Bawag (market cap c.€8.6bn) owns MoCo Mortgages in Ireland which ‘soft launched’ in 2023 (negligible share of mortgage stock) and launched a new instant access deposit product (at a highly attractive rate relative to the competition) earlier this month. It is not clear what Bawag’s longer-term intentions are in the Irish market. However, I would doubt that it has developed a presence in the country just to play at the fringes and must have / be considering an expansion plan. I would expect Bawag to participate in the process as it may have an interest in accelerating its growth in the Irish market.

I expect that Goldman Sachs’, PTSB’s retained advisers, will sound out several potential Continental European acquirers - including the likes of Unicredit, Santander, BNP Paribas, et al. Many banks are acquisitive. What is unclear is whether they would be tempted to break into Ireland.

I suspect it is unlikely that we will see much interest from UK banks / building societies given many UK credit institutions’ adverse experiences in the market. Barclays (BARC) is keen to grow its non-Investment Banking RWAs but: i) the focus is on UK banking and US cards book growth; ii) there is no indication that BARC is interested in getting involved in Irish retail banking; and iii) it could look like a desperate measure (which is not the management team’s style) to reduce the proportionality of RWAs attributable to its Investment Bank ahead of the end-FY26 c.50% target (which the CEO was de-emphasising at 3Q)

Summary view

On balance, I suspect there will be a healthy level of interest in participating in a process. Whether that delivers competitive tension at the later stages of a sale process is less clear but the opportunity to become a major player in a highly concentrated attractive market backdrop will surely be of appeal to some with M&A appetite. As a final note here, the formalisation of a process for PTSB might see attention placed on Ireland within bank boardrooms that otherwise wouldn’t happen - I am not saying it’s likely but could it stoke another player’s interest in either AIBG or BIRG given the higher implied cost of equity for investing in Irish banks (adjusting RoTEs for DTA benefits) relative to other markets I wonder? Just a thought.

Other Considerations

Prospective bidders will be nervous about the regulatory regime

It has been well-documented that Irish banks are subject to a highly stringent regulatory regime. While I am not going to present an exhaustive list of factors in this context, a few are worth noting: i) Irish banks suffer from inordinately high risk weights (PTSB particularly - hence, the IRB models review project which I referred to earlier) owing to elevated PDs, which are a function of past times rather than underwriting standards with respect to flow and the vast bulk of the existing stock - as well as elevated LGDs; ii) Irish banks historically faced regulatory challenges in terms of excess capital distribution (though such restrictions are not evident any more) - for example, NatWest Group (NWG) had a whole two percentage points of CET1 capital trapped in its Irish business, meaning it was a ‘no-brainer’ to exit the market in order to meet its target capital ratio range and returns objectives; iii) the regulator has been widely viewed as taking things too far in the context of certain regulations, e.g., its own initial version of the Fitness & Probity requirements; senior figures in Ireland’s financial services industry informed the Business Post in September that ‘gold-plating is damaging the attractiveness of the country as a place to do financial services business - and this followed Banking & Payments Federation Ireland’s (BPFI) proposals for a regulator reset in early September. My own observation is that, in early to mid-2023, there appeared to me to be a shift in the tone of the dialogue between the regulator and the banks to a more constructive and reasonable stance.

Prospective bidders will be nervous about what government could do next

The State has pursued a carefully choreographed strategy with respect to its investments in the Irish banks. Selling out of BIRG first, then AIBG, now PTSB - making sure that every placing was conducted at a higher price than the price achieved in previous placings. It has recouped the entire amount of its investments in both BIRG and AIBG - this has to be viewed positively, albeit it was massively helped by higher base rates and the exit of two key players from the market.

I have written several articles in Business Post ahead of the last two Budgets arguing that we won’t see an change in bank levies or in the usability of deferred tax assets, partly because PTSB would be much more sensitive to any such changes than its larger peers - which would be problematic for the State in terms of PTSB’s profitability and marketability given the State’s 57% shareholding in the bank (indeed, I have remarked that it suits AIBG and BIRG for the State to remain invested in PTSB for this very reason).

If PTSB is sold then the State will no longer have an economic interest in any Irish bank. How will the government’s attitude towards the sector evolve with that in mind? Could we see materially higher levies, restrictions on the usability of deferred tax assets, etc.? And what if we see government change at the next General Election? That’s something a prospective new long-term owner will think about. The two centrist political parties are facing an emerging coalition of the left (Sinn Fein plus other smaller parties) following what was a truly comical Presidential Election campaign. How would a left-leaning government partner (most likely with Fianna Fail) view foreign owners of Irish banks?

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