Permanent TSB Group Holdings plc ($PTSB)

Good day, and thank you for standing by. Welcome to the BAWAG Group Update Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded, and there will also be a transcript available on the company's website. I would now like to hand the conference over to your speaker, Anas Abuzaakouk, CEO. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thanks for joining on short notice. It's been a busy few weeks to say the least. First and foremost, we are thrilled to have been selected by PTSB to enter into this transaction. The trust and confidence placed in us by the PTSB Board and the Minister for Finance of Ireland as the bank's majority shareholder is something we take very seriously. I want to personally thank all team members involved from both banks as well as the advisers who worked around the clock to make this process a success. Ireland is an extremely attractive market for BAWAG, underpinned by a strong macroeconomic backdrop, a robust banking sector and solid long-term fundamentals. Building on our presence in Ireland, the proposed acquisition is a highly strategic opportunity to strengthen our competitive positioning by bringing together PTSB's local market expertise and commitment to community banking with BAWAG Group's balance sheet strength, scale and operating capabilities. This positions us to drive competition through investment and innovation, supporting PTSB's customers and more broadly, the Irish economy, while delivering long-term sustainable growth. More generally, we believe consolidation among European banks is a catalyst for creating stronger institutions better equipped to compete both domestically and internationally. Strong banks promote investment, drive economic growth and contribute to a more resilient European Union. Our strategy has been consistent since 2012, patient, disciplined and grounded in a continuous improvement mindset. Our resilience is demonstrated by our ability to deliver results consistently and improve year after year. PTSB will be transformative in advancing our vision to build a pan-European and U.S. banking group. We are excited to welcome our new colleagues from PTSB and shape our shared future together. Okay. On to the first slide, Slide 2. Ireland has been a core market for BAWAG for several years. We have been active in the Irish market since 2015 and most recently launched the MoCo brand in 2023, a mortgage and deposit platform. Ireland is defined by a strong economic profile with a AA sovereign rating, solid growth trajectory and a business friendly environment that has successfully attracted foreign direct investment and serves as a hub for access to EU markets. Ireland has also a sound fiscal position and a stable legal environment, defined by strong institutions in the rule of law, foundations for a robust banking market. Favorable demographics and population growth underpin long-term demand for credit and financial services. Lastly, Ireland has a structural housing shortage, creating sustained demand for mortgage lending and retail banking products, which we aim to help address. PTSB, the third largest banking group in Ireland, accounts for 19% of the mortgage market and 14% of the retail deposit market. These strong market shares achieved in a concentrated, yet competitive banking landscape reflect the quality of PTSB's franchise and the depth of its customer relationships. The franchise provides a solid platform for further investment, innovation and the introduction of new product offerings. We see significant opportunity ahead and believe we are well positioned to contribute meaningfully to the long-term competitiveness and resilience of the Irish banking sector. On Slide 3, growing our franchise. PTSB represents an opportunity to acquire the third largest bank in one of our core markets, one we have followed closely over the years. PTSB serves approximately 1.3 million customers and has a strong history as a mortgage lender, providing essential retail banking services through a community banking branch network across the country. The total balance sheet amounts to approximately EUR 30 billion with EUR 22 billion of customer loans, over 90% residential mortgages and EUR 24 billion of retail deposits, of which approximately 40% are current accounts. Our 3 key focus areas will be: one, accelerating growth, the combination of PTSB's strong mortgage and deposit franchise and the full suite of retail and SME banking products across BAWAG Group whether it be SME lending, auto finance, specialty finance products such as leasing and factoring, brokerage or larger ticket corporate, commercial real estate and public sector lending will allow us to offer a broader set of products to PTSB's customer base as well as reach new customers in new segments. Number two, investing in technology and distribution. We aim to combine digital capabilities developed across the group with PTSB's nationwide branch network. A key investment area is building an advisory-focused branch model with the right products and distribution to ensure a seamless customer experience across digital and physical channels while avoiding the friction of legacy transaction-heavy banking. We also plan to benefit from the scale and technology of the larger group. Over the long term, we intend to invest consistently to keep the franchise at the forefront of technology and innovation. Number three, combining local expertise with broader group capabilities. We will combine the local expertise of the PTSB team, which has a deep understanding of the Irish market and close relationships with customers with BAWAG Group's tech ops platform and balance sheet strength. Disciplined capital allocation and M&A specifically is central to our strategy and how we run the bank. This discipline is supported by strong profitability, which enables us to generate significant capital each year. We deploy this capital prudently, extending credit to customers, investing in our franchise and teams, pursuing strategic acquisitions and returning capital to shareholders. We underwrote this transaction to be in line with our through-the-cycle group return requirements. The transaction is expected to generate over 20% plus EPS accretion after 3 years and from a capital allocation perspective, is more accretive than a share buyback by more than 2x. Given our strong capital position and capital generation, our aim is to fully self-fund the deal. Moving to Slide 4, delivering on our strategy. Since 2012, our strategy has been consistent, grow within our core markets while prioritizing customers' needs, deliver efficiency through operational excellence and maintain a safe and secure risk profile, all while embracing a continuous improvement mindset and building the right culture. PTSB will be transformative in advancing our vision to build a pan-European and U.S. banking group with a fortress balance sheet, strong and diverse earnings and a platform to continue investing and growing. Since 2012, we have expanded our footprint from 1 to 7 countries. We started in Austria and expanded Westward to Germany, the Netherlands, Switzerland, the U.K., Ireland and the United States through acquisitions and organic growth. With the acquisition of PTSB, our balance sheet will have grown to over EUR 100 billion in assets, serving over 5 million customers across 7 countries and offering a full suite of retail and SME products and services that are simple, intuitive and affordable and that promote customers' financial health. Since 2012, we have invested over EUR 2 billion in our franchise, primarily to enhance our technology stack and operational capabilities so we can capture efficiencies and scale the business. These investments have helped transform the franchise from a traditional banking model into a digitally enabled bank with a high-touch advisory-focused branch network where customer service is a true differentiator. We see the future as one where customers demand seamless banking experiences with products and services delivered when and where they choose across a robust multichannel platform. Most importantly, we have invested in our team members. Our people are the cornerstone of BAWAG Group's success and are deeply committed to a culture of operational excellence. We focus on attracting, developing and retaining talented, dedicated team members in an environment that supports growth and rewards contributions. Our core markets share similar characteristics with strong financial and macroeconomic fundamentals. Underpinning our success over the years is a disciplined and conservative approach to risk management, focused on building a fortress balance sheet and prioritizing sustainable risk-adjusted returns rather than leverage-driven growth. This is supported by a conservative, highly collateralized lending mix with approximately 85% of our customer business in secured or public sector lending. Our transformation over the years has been anchored in our culture, one that is not defined by a mission statement or an employee handbook, but proven daily in how we collaborate, set priorities and uphold our values. It is captured in our meritocratic principles, valuing work ethic, character and performance. We foster an owner-operator mindset, encourage entrepreneurial thinking and continuously challenge the status quo while maintaining humility. We do not shy away from change, knowing it is the only constant. Our future success depends on preserving this truly unique and dynamic culture as our company continues to grow and evolve. With that, I'll hand it over to Enver to walk through the transaction structure and time line.

Perfect. Thank you, Anas. I will shortly explain the structure and the potential time line of the transaction. So PTSB shareholders will be entitled to receive for each PTSB share a cash amount of EUR 2.97. This represents a 26% premium to PTSB's undisturbed closing share price of EUR 2.35 as well as a 33% premium to the undisturbed 3-month volume weighted average price. The acquisition values the entire issued share capital of PTSB at EUR 1.6 billion, implying a price to tangible book value of 0.82x, and a price to earnings multiple of 14.4x. In terms of structure, the transaction is intended to be implemented by way of a High Court-sanctioned scheme of arrangement under Irish law. The acquisition remains subject to shareholder approval, required regulatory and other approvals and sanction of the Irish High Court. The shareholder approval threshold is 75% in value of those voting at the scheme meeting with a quorum of at least 2 persons holding at least 1/3 of the nominal value of the shares. From a financing perspective, the consideration will be all in cash and capital is anticipated from internal resources and retained earnings. On timing, the key milestones are -- so today, we had the 2.7 announcement. The scheme document posting will happen within the next 28 days. The shareholder scheme vote is planned to take place in summer 2026 and completion is targeted for Q4 '26 or Q1 '27, subject to receipt of remaining regulatory clearances. And with that, operator, let's open up for Q&A. Thank you.

[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of M t Nemes from UBS.

I have 3 questions, please. The first one is on the time line of integration and achieving the 20% plus EPS accretion. Could you confirm by which year do you expect the 20% plus EPS accretion happen? Is that 2028? Is that 2029? Any clarity on that would be much appreciated. The second question would be on the EUR 1.62 billion fully self-funded as a consideration. Could you elaborate on what is still needed for you to be in that situation to fully self-fund this? Is that 2026 retained earnings? Is that additional capital to be freed up with capital optimization, perhaps SRTs? And also, could you confirm if you do see any impact on BAWAG's dividends in 2026? And the last question would be whether you could outline the key measures that you'll take to achieve the 20% accretion. How much cost takeout are you expecting as part of the measures? And then how much could come perhaps from other sources?

All right. Thanks, M t . Hopefully, we don't have any issues with the line here. But I would say, M t , first and foremost, next week during our 1Q earnings, we plan to go through more detail with respect to the financing of the deal. So I think this is going to be a key question. We hope to provide more detail by then. We'll have more clarity. So anybody who has questions on that front, unfortunately, will have to wait to the 1Q earnings. As with respect to the EPS accretion, the '28, '29, you should assume that this is year 1, and it's 3 years from year 1 being 2026. That's kind of the time line, but we'll also hopefully provide more clarity in the weeks ahead. And what was the third question, I think you asked about what the actual -- is it the operational?

Exactly. If you could just outline how exactly you aim to achieve the 20% accretion?

Yes. No, I think it's early on that, M t , as well. I think the 20-plus percent EPS accretion, the accretion of over 2x relative to a buyback, at least for now, just given the time line, I think that should suffice, and then we'll fill in the blanks and provide more details, both next week as well as in the weeks ahead.

We are now going to proceed with our next question. And the questions come from the line of Gabor Kemeny from Autonomous Research.

A couple of clarifications from me, please. In the past, you guided for a 20% plus return on your acquisitions. Can you confirm you are aiming to achieve such returns on PTSB? And a further clarification, if you are looking at your ROI on a constant capital basis or relative to the value of your investment, so the EUR 1.6 billion and any adjustments to that? That's the first one. And the second one, I noticed in PTSB's statements, a pretty meaningful fair value reserve on the loans side. Can you confirm that you might be able to recognize significant value from a positive fair value adjustment. I think it's in the area of EUR 500 million to EUR 600 million upon the acquisition.

Yes. Thanks, Gabor. Good questions. I'll take the first and then Enver will address the second question. I would say consistent with what we -- what I mentioned during the presentation, we underwrote the transaction to be in line with our through-the-cycle group return requirements, which you are well aware of, that is greater than 20% ROTCE. When we do acquisitions, we look at the entire group. Given the fact that it's managed as one large group, it's not as a separate entity, given the synergies, given the best practice sharing, and that is one that we don't look at it as an individual investment. But suffice it to say, we underwrote it to through-the-cycle group ROTCE returns. And given that we're -- this is a franchise that we're maintaining for hopefully a forever hold period, you should look at it in the context of the entire group. And just to remind you, we said the group ROTCE hurdles, I mentioned it at year-end through the cycle, in certain years, you will overdeliver, but that should be seen as more of a floor. So Enver, do you want to take that? I think there was a question on fair value.

Sure. Robert, on fair values, I think it's too early to talk about it, but I think it's fair to say with -- in line with prior practice, what we have done is that we would try to reinvest any potential positive fair value gains of day 1 into the business and reinvest it rather than taking a day 1 gain.

We are now going to proceed with our next question. And the questions come from the line of Hugo Cruz from KBW.

So my first question is around the PTSB AGM to approve the deal. You need to have 75% of those voting in favor. It's quite a concentrated shareholder base. So I was wondering if you could give us any color on any risk that this doesn't get approved? And also if you've had any discussions with some of the other shareholders outside of the Irish government? So that's my first question. Then I wanted to ask you a couple of other things. So one on PTSB, once it comes into the group, do you -- they have quite a high RWA density. Do you already have a view on if there's any potential of moving them into, let's say, models with lower density? And the final question on how do you expect to manage this business going forward? Are you keeping a separate legal entity or a Board in Ireland? Or is the plan to kind of get synergies from a branch approach?

Thanks, Hugo. Enver, do you want to take those questions?

So I'll start with the first one. So I think the -- we can't really say anything about the AGM, but I think it's very important to get the 57% vote out of the 75%. But yes, there is going to be a vote that the rules are set. We think the risk is limited, but still there's going to be a vote, and we have to wait for it. I think the second question, Hugo, was any intention to move to models with lower intensity? Is that IRB related, I guess, Hugo?

Yes, exactly.

Yes. So we have the situation, as you know, that we moved most of our models to a standardized approach, especially for retail models. The situation is different with PTSB. And that's something that we need to sit down together once the transaction closes together with the PTSB team as well as with the regulators and discuss the best way forward. But we have not decided yet. And then the last one was the branch approach, I guess. Yes, I think what we also said in our 2.7 announcement today, so we will keep it a separate entity with a full license in Ireland. So we will not try to branchify. So it's going to be separate entities in the future.

We are now going to proceed with our next question. And the questions come from the line of Jordan Bartlam from Mediobanca.

In the announcement document, it says that you'll review PTSB's fixed asset base following completion, but don't currently intend to make any material changes to redeployment of that fixed asset base. Just wondering if there's anything to read into that in terms of the plans to the footprint going forward. And within that, whether that -- how to factor that into any potential cost synergies going forward?

Thanks, Jordan. I believe is the question related to branches? Is that what you're referring to?

Yes. In the announcement document, there was a comment in there saying that there is no intention to make any material changes to that fixed asset base of PTSB. I'm just trying to work out how the 2 kind of tie up and indicate those.

Yes. Okay. So you're referring to the branches. Yes. So we have indicated, we actually think that the branch network, the nationwide branch network is a real asset. And that if you think about our history of having a kind of a traditional banking model that was more transaction-focused and how we've been able to transform that to kind of a digitally enabled but high investments in advisory, having the right folks, pushing the right distributions, we think that is going to be really complementary -- that the branch network, in particularly the relationships that the PTSB team has built up with their customer base over the decades, we think that's a real asset and that the branch network is one that will continue to be an asset for the company.

[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Aman Rakkar from Barclays.

I have a couple. First of all, have you had to offer any assurances to the Irish government around Permanent TSB under BAWAG's ownership? I guess I'm thinking about things such as headcount. You've kind of alluded to the branch -- the enduring value in the branch network and the fact that you run it as the existing kind of entity structure. But is there any kind of assurances around headcount or capital allocation or anything that you've kind of had to offer to the Irish government to kind of get this deal over the line. And then the second question was around just kind of interested in your high-level thoughts around the extent to which you think the franchise requires...

Excuse me, your line is really -- I have a hard time hearing. Can you -- I'm not sure where -- if you could maybe adjust your line.

Can you hear me now?

That's better. Whatever you did, just keep on doing that.

Okay. Should I repeat that first question? Or did you get it?

I think the team got it, but yes, if you can just start with the second one again, please.

Yes. On the second one, I just wanted to get your high-level thoughts around to what extent you think the franchise requires kind of significant investment from here. In terms of the cost base and whether you think there's kind of significant restructuring of the cost base to be done and investment from BAWAG to execute on that? And then is there any additional color in terms of your ability to drive the top line? I guess that's part of the strategic rationale that's been put forward as to why Permanent TSB Group would be better served as part of the bigger organization. But it's slightly less clear to me, given the fact that you have a presence in Ireland, but not a hugely material one. So if you could kind of elaborate on your ability to drive the top line over and above, say, Permanent TSB stand-alone, that would be really helpful.

Okay. I'll take the second question because I heard that clearly, and then I'll defer to Enver on the first question. I think the question was around what we intend to do from an operational standpoint and the enhancements. And as I mentioned in the presentation, if you look back to the history of BAWAG, I think the part that probably doesn't get communicated as much or people don't understand as well is we've made almost over EUR 2 billion in investments, which was heavily focused on our technology stack and our operations, what we call tech ops. We think that's a real competitive advantage. That has allowed us to really reduce the friction in legacy transactional banking, which then frees up capacity for our advisers to really be able to advise and distribute fee-type products. That's why I alluded to the asset of the kind of the overall branch network. So that's something that we intend to do to invest heavily in line with what we've done across the larger group to build those digital capabilities. I'd mentioned just the different distribution channels. And then in terms of the -- it is really unique because there's over 1.3 million customers. And today, it's primarily a mortgage lender, right? Almost -- I would go to say it's a monoline mortgage lender, although there is some SME products as well. But we hope to introduce the full suite of retail and SME products that we've built over the past decade. And that has been organically as well as through acquisitions. MoCo, which is more just a mortgage product as well as we introduced the deposits recently. That gave us a good sense of operations on the ground and helped us to become much more informed. I think that was the biggest lesson, and we built up a really strong team that will obviously be supportive to with the PTSB. But we're really excited about the opportunity. We don't comment on revenue synergies or revenue growth. I think everything is reflected in the greater than 20% EPS. We tend to be conservative when we do transactions, and I think this is going to be no different. So I'll pass it over to you, Enver, because I'm not sure I got the first question.

I think on the first one, it's very easy. So all commitments that we made are public or are part of the 2.7 announcement that we released today.

This concludes the question-and-answer session. And I would like now to hand back to Anas Abuzaakouk for closing remarks.

Well, let me first say apologies for the issues with our line. I think in the haste of putting all this together, these things happen. So I hope that wasn't too much of a trouble for folks. More importantly, looking forward to talking to everybody next week. Hopefully, we'll be able to address a number of the questions that I kind of referred to the first quarter earnings and had in the discussion. Take care, everybody. Have a great afternoon. For those across the pond, have a great morning as well. Take care.