Mario Draghi

25 Jul 2019

Permanent TSB - Solid H119 performance

PTSB release their H119 interims this morning. 

Numbers look like a beat on NII, total income, capital and NIM, but costs are also slightly ahead of where we saw them marginally offsetting this, as NPLs remain high and static on the period. A low impairment charge of just €5m however. 

In terms of financial performance, PTSB reported a PBT of €28m (PBT before exceptionals €42m), NII €181m (-6% y/y due to NPL disposals), net fee income €17m (-11% y/y), net other income €12m (-45% y/y), total operating income €210m vs €234m H118. Operating costs (ex. levies) €145m (+1.4% y/y), impairment charge €5m (H118 nil). There were exceptional costs of €14m primarily around redundancies/restructuring, but also €3m for the tracker mortgage problems. NIM of 182bps (FY18 179bps) was slightly ahead of our expectations, while capital also grew solidly in H1 to FLCET1 14.4% (Q119 14.1%). Net loans declined however to €15.8bn (FY18 €15.9bn). 

New mortgage lending +18% y/y and market share of 14.7% (FY18 15.1%) held up well despite fresh competition entering the sector, with personal lending +16% y/y. NPLs of €1.7bn were static on the quarter and the NPL ratio remains at 10%, which highlights tail risks to balance sheet asset quality, while PTSB now holds 882 properties in its possession with 1400 having been disposed of in the last 18 months. Management note (as we have already done) that with the CBI countercyclical capital buffer (CCyB) being brought in at 1%, it will now target a 13% FLCET1 (12% previously) in the medium term. 


Overall results look decent and should support the continued recovery story, however, NPLs are still to be dealt with and volume/margin growth remains constrained by the credit/rate backdrop (so today’s ECB meeting is probably going to have more of an impact). Management presentation and call at 9am.

No change today

Later today, the ECB’s Governing Council (GC) will deliver its latest policy decision. We do not expect any changes to the key rates or QE this time around, with the deposit, main refinancing and marginal lending rates held at -0.40%, 0.00% and +0.25% respectively. However, we do believe that this meeting will represent a key precursor to a loosening in policy later this year. 

July’s meeting is set against an economic backdrop where the Eurozone economy is facing a persistent soft patch. Q1 GDP growth had surprised to the upside at +0.4% q/q but that looks to have been driven by temporary factors, with the subsequent run of monthly data pointing to a softer Q2. Indeed, the continued weakness in euro area activity has led some members of the GC to acknowledge that the soft patch can no longer be considered temporary. 

Meanwhile, there is the continued risk from trade tensions and sluggish inflation, where the latest set of ECB forecasts (June) envisaged HICP standing at 1.6% at the end of 2021, which the ECB recognises as being ‘some distance below’ its target of ‘below, but close to, 2.0%’.

September cut

June’s GC meeting saw the ECB update its guidance, push back the expected timing of any rate hike until (at least) H2 2020 and provide the final pricing details of TLTRO-III. However, the account of the meeting revealed a GC preparing for a possible easing of policy. This hint was hammered home by President Draghi’s comments from the ECB’s conference in Sintra, Portugal, where he clearly put interest rate cuts and/or a restart of QE on the table. We suspect that the ECB will further guide markets to an easing of policy by modifying its guidance later today, reintroducing an easing bias, with an expectation that rates will remain at their ‘present levels or lower’. We view this as a prelude to a 10bp cut in the deposit rate to -0.50% at the September meeting.

In summary

Our central case now envisages the ECB moving to a stance of more accommodative monetary policy through the year, principally through guidance and interest rate reductions. However, should the economy fail to pick up, inflation remain subdued or downside risks from trade materialise, a restart of QE looks likely. 

Note that our current published view on the Euro is based on unchanged ECB policy this year but in light of our revised policy view, these forecasts are under review and have been updated in our regular monthly global publication (published 23 July).

Trump cries fake news as Mueller denies exoneration

Special prosecutor Robert Mueller endured 5 hours of questioning from Republican and Democratic lawmakers yesterday, following his 2-year probe into Russian meddling in US elections. A seemingly nervous Mueller failed to deliver the soundbites that Democrats would have been hoping for, nevertheless, his testimony was damning for president Trump and Republicans. 

Trump on the other hand claimed that the testimony was a win for him and a bad loss for Democrats, who “had nothing, and now have less than nothing”. He denied that Mueller testified that he could be indicted once he had left office, something he did twice during the testimony. Mueller also repeatedly stated that the report did not exonerate Trump, something the president has claimed repeatedly since the publication of the report. 

Johnson names cabinet of Brexiteers

After Boris Johnson took over as Prime Minister yesterday afternoon, he headed to Parliament where he sacked swathes of Theresa May’s Cabinet and government team. That is, those who hadn’t already resigned. 

Johnson then headed back to Downing Street and pressed ahead with his new appointments, which included Sajid Javid as Chancellor, Dominic Raab as Foreign Secretary and Priti Patel as Home Secretary. The new Cabinet is populated much more heavily with Brexiteer ministers particularly in the most senior positions. Aside from those mentioned, Stephen Barclay stays on as Brexit Secretary and notably Jacob-Rees Mogg takes over from Andrea Leadsom as Leader of the Commons, an important role amidst efforts to progress Brexit legislation. Geoffrey Cox stays on as Attorney General. The new Prime Minister is set to meet his new Cabinet team at 8.30am today and is then expected to head to the Commons to appear at the dispatch box at 11.30am. 

Mr. Johnson’s speech yesterday, though full of fighting talk, shed no real new light on his plans on how he would progress Brexit to meet his promise to leave the EU on 31 October, which he reiterated yesterday would  happen with “no ifs or buts”. 

Note that the extent of the Theresa May government clear out is a risky strategy for Mr. Johnson, given that he will no doubt be looking for the support of many of those dismissed in the passage of any revamped Brexit package through Parliament. For now though, it is all eyes on the Commons mid-morning, before Parliament heads into summer recess at the end of the day.

Economic Releases

08.30    UK        Boris first cabinet meeting

11.30    UK        Boris first cabinet speech as PM

12.45    EU        ECB meeting

13.30    EU        ECB press conference