Permanent TSB Buys Northern Rock Irish Deposits

31 August 2011 - Which Way to Pay

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Permanent TSB Buys Northern Rock Irish Deposits

In a €650 million deal, Northern Rock has sold its Irish deposits to Permanent TSB who are hopeful that the purchase will improve its crucial loan-to-deposit ration by 10 percentage points.

The news of the deal comes ahead of today’s results from parent company Irish Life & Permanent (IL&P), which look set to apply further pressure on Permanent TSB’s corporate deposits. Permanent TSB has been given until 2013 to get its loan-to-deposit ration down like many other Irish bailed-out lenders; as such, the goal is a ratio down to 122.5% as part of a major restructuring of the banking sector.

On wholesale funding markets, Permanent TSB was the most reliant of all Irish banks. The loan-to-deposit ratio at the end of December was 249%, or in-other-words, for every €100 a €249 loan was deposited.

That ratio was expected to fall alongside the acquisition of Irish Nationwide's €2bn deposit book in February to 200%, with yesterday’s deal expected to knock back about 10 percentage points to bring the ratio under 200%.

However, some industry sources speculate that Permanent TSB could find it difficult to hold onto the deposits because many savers moved their money to Northern Rock as a result of the security offered by the UK bank guarantee scheme. As such, those savers may be looking to move their deposits to another UK bank trading out of Ireland rather than leaving them with Permanent TSB.

In a statement Northern Rock said the decision to sell the Irish business came after a "review of its retail funding strategy". In addition NR added that the deal would improve returns for the bank by reducing excess liquidity.

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