AIB to cut over 300 jobs as low ECB rates squeeze income

AIB signalled on Tuesday that it plans to shed more than 300 jobs this year to rein in costs as a "very challenging" interest rate environment internationally is squeezing lending margins and income.

The bank, which had 9,831 employees at the end of last year, said in a trading update that it is currently sitting on €4 billion of excess deposits and other liquid holdings, at a time when the European Central Bank (ECB) is charging banks a rate of minus 0.5 per cent to hold their surplus cash.

AIB’s net interest margin - the difference between the average rates at which it funds itself and lends to customers - contracted by 0.11 percentage points during the third quarter to 2.32 per cent.

Shares in the bank fell by up to 3.4 per cent in Dublin as the bank’s cautious trading statement prompted analysts, including Davy’s Stephen Lyons, to say that they will lower their full-year profit forecasts for the lender.

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Goodbody Stockbrokers analyst Eamonn Hughes said the market may have to pull back its 2020 net interest margin expectations for AIB.

"Given the wider economic uncertainty, particularly Brexit-related, we remain focused on controlling the controllables for the remainder of the year and beyond," said the bank, led by chief executive Colin Hunt. "We have introduced a number of cost management initiative and aim to finish the year with less than 9,500 employees."

Mr Hunt, who took over as CEO in March, also indicated last month that he expected to cut 1,000 jobs by the end of 2022.

Redundancies

The bank - currently in the middle of a hiring freeze - looked for 200 people to put their names forward for voluntary redundancies by the middle of this month across its problem loans division as well as its mortgages and consumer credit businesses. Staff taking up the offer will exit just before Christmas.

“There is an agreed reduction of 200 employees through a voluntary severance programme. We are also aware that the bank is not renewing some fixed term contractors and consultant contracts,” said Billy Barrett, a senior industrial relations officer at the Financial Services Union.

“The focus from the union’s perspective is the impact these reductions will have on staff remaining in employment. We need to ensure that departments and branches are correctly staffed.”

Like rival Bank of Ireland, AIB is taking out some management layers to simplify its structure.

The size of AIB’s loan book dipped to €62.7 billion at the end of September from €62.9 billion nine months’ earlier, as small businesses remained cautious about taking on new borrowings amid Brexit uncertainty. Still, new mortgage lending increased by 9 per cent, giving it a 32 per cent share of the market for drawdowns for the first nine months.

AIB has also “moderated” its appetite for syndicated and international lending, it said. The Central Bank warned in recent months of risks in Irish bank’s combined €10 billion portfolio of global leveraged loans, typically to fund mergers and acquisitions, amid growing concerns among regulators that an economic slowdown will hit this $1.2 billion international market, which has more than doubled in size in the past decade.

AIB’s common equity Tier 1 capital ratio - a key measure of balance sheet reserves to absorb a shock loss - fell to 16.5 per cent at the end of the third quarter from 17.3 per cent in June. This was driven as the bank set aside money to cover a shareholder dividend payment next year and as the risk weighting of the bank’s assets were adjusted under a ECB review of lenders’ loan books.

The bank said it is on track to meet its target of lowering its non-performing loans to 5 per cent of total loans by the end of this year. It agreed last week to sell another portfolio of problem loans, with a face value of €850 million, to US distressed debt giant Cerberus at a discount of 18 per cent.

AIB had a NPLs ratio of 37.5 per cent at the height of the mortgage arrears crisis in 201 and dealt with most of the problem by restructuring borrowers’ loans.

However, it has been resorting increasingly to loan sales in the recent few years to shift the trickiest cases. It is planning to offload thousands of soured owner-occupier mortgages next year in a sale code-named Project Birch.

Meanwhile, Mr Hunt is preparing to accompany full-year results for the bank in March with a new strategic plan, including financial targets and a programme to return excess capital on its balance sheet to shareholders, led by the State, which holds a 71 per cent stake.