By Padraic Halpin
DUBLIN (Reuters) - Irish lender permanent tsb (PTSB) (I:IPM) plans to raise 525 million euros (372 million pounds) in capital from private investors to fill a hole identified in European bank stress tests last year and repay state funds.
The 99.2 percent state-owned bank was the only Irish lender to fail the stress tests and said at the time it would be able to cover all but 125 million euros of the 855 million euro capital hole found by the European Central Bank (ECB).
PTSB, the smallest and only loss-making lender of Ireland's three domestically owned banks, said it expected to raise 400 million euros in new equity and 125 million euros by issuing additional Tier 1 capital.
It will use the capital to repurchase 400 million euros worth of contingent capital notes the state holds in the bank, fill the shortfall identified in the stress tests that it cannot fund itself and to cover losses on the sale of non-core assets.
"I can't speculate yet on the size of shareholding private investors will own. The state plans to retain a majority stake," PTSB Chief Executive Jeremy Masding told Ireland's Newstalk radio station, adding that he hoped to close the transaction by the end of June.
PTSB, which received 2.7 billion euros of capital during Ireland's financial crisis, also said it cut its loss before tax last year to 48 million euros from 668 million euros in 2013.
A reduction in customers in mortgage arrears, a result of Ireland's improving economy and the bank's loan restructurings, allowed PTSB to take a provision writeback of 42 million euros versus a 927 million euro charge taken a year earlier.
Unlike Allied Irish Banks (I:ALBK), Bank of Ireland (I:BKIR) and Royal Bank of Scotland's (L:RBS) Ulster Bank, which have all returned to profit, PTSB's large stock of mortgages which track the ECB's record low interest rate have slowed its progress.
Masding said in November the bank expects to be profitable by the end of 2016 or possibly earlier. The core retail bank PTSB plans to carve out once it sells billions of euros of assets posted a 45 million euro profit last year.
PTSB added that its restructuring plan had been approved in principle by the European Union. Conditions of the plan include the sale of assets, 5 billion euros of which the bank said it had already agreed to.