Response to ECB SSM Comprehensive Assessment

permanent tsb Group Holdings plc ('the Group') responds to publication of results of ECB's SSM Comprehensive Assessment exercise ('CA')

· Group confirms that the Asset Quality Review (AQR) supports provisioning levels

· Group confirms that it has sufficient capital to meet the Baseline Stress Test

· Group is finalising its Capital Plan to address the shortfall identified in the Adverse Stress Test

· Group confirms the Capital Plan will propose that over 80% of the Adverse Stress Test shortfall has already been covered by Contingent Capital ("CoCo") and Management actions

· Group has detailed plans to raise capital from private investors in 2015, to support both the maintenance of prudent capital buffers and profitable growth

· Group strategy remains to return to sustainable profitability through addressing legacy issues and capturing profitable growth opportunities in the Irish retail banking market

11.01 am Sunday 26th October 2014 permanent tsb Group Holdings plc ("permanent tsb" or the "Group") notes today's publication of the results of the SSM Comprehensive Assessment (the "Comprehensive Assessment" or "CA") by the European Central Bank (the "ECB").

Summary Results

There are three aspects to the results published by the ECB and the European Banking Authority (the "EBA") today:

1) Asset Quality Review (the "AQR"): The CA AQR validates the Group's provisioning levels as at 31 December 2013.

2) Baseline Stress Test: The Group successfully meets the requirements of the CA Baseline Stress Test scenario with no additional capital requirement (adjusted CET1 Ratio under baseline scenario of 8.82% v 8% CET1 required).

3) Adverse Stress Test: Under the severe CA Adverse Stress Test scenario the Group's balance sheet at 31 December 2013 would not have met the 5.5% CET1 ratio (adjusted CET1 Ratio in Adverse Scenario was 0.97%). This equates to a requirement for an additional capital buffer of €855m for the balance sheet at 31 December 2013 under the Adverse Stress Test Scenario.

The Adverse Stress Test for the Group was completed using a "static" balance sheet at 31 December 2013. As such, the test did not take account either the progress in the Group's performance (which is ahead of target) or the recovery in Irish economic indicators (which are well ahead of consensus expectations and even the Baseline Stress Test assumptions) since that date. In addition, full comparability to banks with approved restructuring plans is not possible. Banks with approved restructuring plans were able to use more of a "dynamic" basis thereby taking into account positive developments in their businesses during the course of 2014and significant improvement in the operating environment.

Capital Plan

The Group has had constructive engagement with both the Central Bank of Ireland (the "CBI") and the ECB in relation to its Capital Plan, which is required pursuant to the outcome of the CA and which it will formally submit to the SSM in early November 2014. The Group has outlined the measures to address the capital shortfall under the Adverse Stress Test Scenario which it proposes to take and is in active discussions on finalising the plan. Under the terms of the CA exercise, the Group has nine months from the date of this announcement to deal with any capital requirement arising from the Adverse Stress Test results.

· A significant proportion of the capital required is already in place in the form of €400 million par value of the CoCo instrument included as part of the recapitalisation of the Group in 2011.

· In addition, the Group expects that a further amount of over €300m of the net shortfall will be met by the impact of asset sales and improved pre-provision financial performance, in conjunction with a lower amount for technical items.

On this basis, the Group will propose that over 80% of its Adverse Stress Test requirement has already been covered by these items.

In addition to the measures which will be set out in the Capital Plan, the Group's position is already being strengthened by certain positive actions and developments for which the Group does not receive credit under the rules of both the CA exercise and the Capital Plan, but which have occurred this year or will likely occur in the near future. These include reductions in arrears, interest earned from NPLs, write-back of provisions (as a result, inter alia, of recovering house prices), reduced funding costs and natural deleveraging of both core and non-core portfolios.

Capital Raise

The Group has detailed plans to raise an amount of capital from private investors to support both the maintenance of prudent capital buffers and profitable growth. This will adequately meet the amount required by the SSM Adverse Stress Test scenario.

Any capital raising transaction will be subject to regulatory and other relevant approvals and it is envisaged that the transaction structure will allow for the pre-emption rights of existing shareholders.

Deutsche Bank and Davy are advising the Group on potential capital raising alternatives.

Restructuring Plan

The Group has been in positive and constructive discussions with the Department of Finance and the Directorate General of Competition ("DG Comp") and will shortly submit an updated Restructuring Plan which will incorporate details of the Comprehensive Assessment exercise and which will be revised for positive financial and operational performance in late 2013 and during 2014.The Restructuring Plan is a requirement under EU State Aid Rules in the context of the recapitalisation exercise of the Group undertaken by the State in 2011.

Comprehensive Assessment

Asset Quality Review

The AQR's purpose was to enhance the transparency of bank exposures, including the adequacy of asset and collateral valuation, and thus associated provisions. All asset classes, including non-performing loans, restructured loans and sovereign exposures, were covered. The AQR review was conducted with reference to harmonised definitions, including those for non-performing exposures and forbearance.

The AQR review validated the provisioning methodology of the Group in respect of its loan portfolio and conservative risk weighting methodology and no additional capital was required as a result of the AQR test.

Stress Test - Baseline Scenario

The Group has sufficient capital for the baseline stress test threshold of 8% Common Equity Tier 1 over the 3 year forecasting period (adjusted CET1 Ratio after Baseline Scenario was 8.82%).

Stress Test - Adverse Scenario

The Group had a shortfall against the minimum capital threshold of 5.5% under the Adverse Stress Test Scenario (adjusted CET1 Ratio after Adverse Scenario was 0.97%). The ECB has stated that the Adverse Stress Test Scenario was designed to cover "what-if' scenarios including plausible but extreme assumptions, which are therefore not very likely to materialise."

Full comparability to banks with approved restructuring plans is not possible. Banks with approved restructuring plans were able to use more of a "dynamic" basis, thereby taking into account positive developments in their businesses during the course of 2014 andsupported by significant improvement in the operating environment.

As a result of these constraints the Group's capital position in the Adverse Stress Test was significantly below management's expectations for the future outlook of the Group and does not reflect performance year to date, which is ahead of target.

Group Strategy and Medium-Term Plan

The Group's strategy remains to return to sustainable profitability through addressing legacy issues and capturing profitable growth opportunities in the Irish retail banking market.

It is anticipated that the strongly improving economic environment in Ireland, characterised by continued GDP growth, falling unemployment and increasing house prices, and that of the UK where house prices have remained resilient and interest rate increases are expected sooner than the Eurozone, will serve to support the Group's strategy and delivery of its medium-term plan by:

· Strengthening the Core Bank's competitive position in the Irish retail financial services marketplace across deposits, current accounts, mortgages and consumer lending.

· Returning the Core Bank to sustainable profitability through participation in deposit and lending growth opportunities thereby rebuilding net interest margin and reducing its cost of funds.

· Managing non-performing loans to maximise value for the Group while establishing equitable and sustainable solutions for customers.

· Maximising value from Non-Core, through a combination of ongoing disposal of Non-Core Irish assets, and management for value of Non-Core UK assets.

· Building a safe, stable and resilient Group through ongoing improvement in its capital and funding positions and, in line with a conservative policy of maintaining capital and liquidity buffers above minimum regulatory thresholds.

These strategic objectives are supported by Management's medium-term plan of achieving:

· a Core Bank RoE of 10%,

· Core Bank Net Interest Margin of 1.7%,

· Core Bank Cost:Income ratio of 50%,

· Group Cost of Risk less of 50bps; and

· Group CET1 (fully loaded) ratio of 11%.

Quote from Jeremy Masding, Group Chief Executive

Speaking today, Jeremy Masding, Group Chief Executive of permanent tsb Group Holdings plc said: "The Group has developed detailed plans to raise some capital from the private markets as part of its Capital Plan following the ECB Stress Test Results and the Group is not expected to require any further support from the State as a result of this exercise." He said: "The only issue that arose in these tests was in respect of the Adverse Stress Test scenario which the ECB itself acknowledges as "extreme" and which does not reflect a number of important factors, including the progress made by the bank over the past year or the existence of €400 million of Contingent Capital. Our Capital Plan for the ECB will demonstrate that we have already closed the gap identified at that time by over 80% and we are planning to raise capital from private investors to support both the maintenance of prudent capital buffers and profitable growth."

Mr. Masding also confirmed that the Group will shortly submit an updated Restructuring Plan to DG Comp in the EU which will incorporate details of the CA exercise and which will reflect positive financial and operational performance in late 2013 and during 2014.

Contact details

Deutsche Bank +44 207 545 8000

Tadhg Flood

Nicholas Hunt

Inigo de Areilza

Claire Brooksby

Davy + 353 1 6796363

Ivan Murphy

Eugenee Mulhern

Brian Garrahy

Media:

Gordon MRM

Ray Gordon +353 87 2417373

David Clerkin +353 87 8301779

About permanent tsb Group plc

The Group is a leading provider of financial services in the Irish banking market. The Core Bank comprises a full service retail bank focused on customers in the Republic of Ireland. It offers a broad range of banking products and services to its customers including current accounts, retail deposits, residential mortgages, term loans, credit cards, overdrafts, general insurance and bancassurance.

Since the appointment of new management in February 2012, the Group has undergone a significant transformation to rebuild its governance, develop its infrastructure, build credit risk and collection capabilities, actively manage its liquidity, close the pension funding gap and drive innovation in the Group's products, pricing and service.

As a leading player in the Irish retail banking market, the Group holds the third largest customer market share for its key products: current accounts, retail deposits and residential mortgages. The Group has a strong customer franchise built over more than a hundred years, with a mutual heritage that has contributed to the development of a respected consumer brand. It also has a strong record of product and customer innovation.

The Group has 76 branches in the Republic of Ireland, distributed widely to provide national coverage serving c1.1m customers (out of a population of 4.6m). In addition to branch service, the bank operates through three other channels: telephony, online and ATM. As of June 2014, the bank employed 2,269 FTEs in the Republic of Ireland.

Alongside its Core Bank operations, the Group also holds a legacy Non-Core portfolio of €7bn UK Buy-to-Let mortgages and €2.6bn Irish commercial real estate loans.

The Group reported results in respect of the six months ended 30 June, 2014 on 19th August, 2014 and recorded significant progress in stabilisation and recovery, including a decline in underlying losses before exceptional items relative to the same period in the prior year. The Group reported a €171m loss before exceptional items in H1 2014, which was reduced by over 60% in H1 2014 vs H1 2013.

The Core Bank recorded a continuation of the 2013 trend in strong growth in current accounts in the first half of 2014 with the exit of certain competitors creating additional opportunities to recruit large numbers of new customers. In the first half of 2014 over 15,000 payroll accounts were opened and retail current account balances grew by c€250m while retail deposit volumes increased by c€330m, which represents a market share of 13%. In that period permanent tsb also approved more than €264m in mortgage lending representing an increase of c.280% from 2013. Drawdowns in this six month period amounted to €180m, representing a market share of 13%. Innovations intended to contribute to improving yield on the historic asset base, such as the Group's new Tracker Mover product were also launched and were well received by the market. Personal Term Lending and Credit Cards also showed growth in the first half of 2014 increasing by approximately 16% from 2013.

Underlying arrears levels continue to be managed down in each of the loan portfolios within the Group's Asset Management Unit. Over 90 days arrears levels are down 24.7% from peak and 23.1% year to date. As a result, the provisions for impairment charge in the second half is expected to be significantly reduced from the levels in H1 2014, which were in turn 65% lower than H1 2013. Notwithstanding that the Group has maintained a conservative peak to trough fall assumption of 55% for Irish Residential Property prices, the Group saw a net provision release in the third quarter. In future periods this positive trend is anticipated to continue, driven also by improving macroeconomic indicators, particularly the improvement in the residential property prices and reducing levels of unemployment.

In line with the Group's stated policy of deleveraging, it has completed significant deleveraging in the current year, with gross loans on a constant currency basis down €1.2bn, 3.6% since 31 December 2013. In addition to providing additional liquidity, these sales also created a net improvement to the Group's regulatory capital position:

· September 2014: Sale of a portfolio of €235m of Residential Mortgage Backed Securities.

· September 2014: Disposal of a €222m (Stg£172m) tranche of UK based loans. In addition CHL has had repayments and redemptions of Stg£204 million for the year to the end of September 2014.

· October 2014: Agreement on sale of the subsidiary Springboard Mortgages Ltd, a wholly owned subsidiary of the Group, which focussed on non-conforming mortgages in the Irish market. The par value of the loan book was €468 million, with over 70% of these loans being non-performing (4% of the Group non-performing loans at 30 June 2014).