AIB revealed on Friday that it will cut 1,500 jobs over the next three years – equivalent to 16 per cent of its current workforce – to keep costs in check as earnings across the industry are being squeezed in ultra-low interest rates.
The bank, led for the past year by chief executive Colin Hunt, eliminated 500 jobs in 2019 through voluntary redundancies, costing as much as €48 million, and by not replacing many individuals that left naturally, it said as it reported full-year results.
The number of full-time workers fell by about 3 per cent to 9,520 last year, taking into account 91 additional staff absorbed through AIB’s purchase of payments company Payzone and 100 of previously outsourced roles being taken back into the bank.
AIB set aside €78 million for potential regulatory fines last year as the Central Bank continued an investigation into the industry-wide tracker mortgage scandal. In addition, it slashed its proposed dividend as its earnings dropped.
Pre-tax profit fell by 60 per cent to €499 million, as the bank’s lending margins were squeezed in an ultra-low rates environment and it set aside €300 million of additional tracker-related provisions after a Financial Services and Pensions Ombudsman preliminary decision with ramifications for almost 6,000 cases.
The bank issued a warning on this decision last month.
The financial result was also impacted as AIB also booked €16 million of provisions for bad loans, whereas profits in 2018 had been boosted by the release of €204 million that had previously been set aside for soured debt.
The bank proposes to pay out a dividend of 8c per share, down sharply from the 17c handed out on 2018’s results to shareholders, led by the State, which owns a 71 per stake.
Cost targets
Mr Hunt set out a series of targets to be achieved by 2022 as part of his vision for the bank. They include ending the period with a cost base in line with 2019’s €1.5 billion, which had marked a 5 per cent increase on the previous year. Costs are expected to grow by as much as 2 per cent in 2020 amid wage inflation.
The medium-term targets include cutting the workforce to about 8,000 by the end of 2022. Half of the job cuts targeted will come from reducing staff in its bad loans and tracker-mortgage redress units, with the remainder coming from a simplification and increased digitisation of the business, Mr Hunt told analysts at a presentation.
AIB also set out a goal of having a return on tangible equity – a key measure of profitability relative to shareholders’ equity – of more than 8 per cent by 2022, almost double last year’s level. It aims to have a common equity Tier 1 capital ratio (CET1) – a measure of the bank’s rainy-day capital reserves – of in excess of 14 per cent.
The bank also plans to apply to regulators in the European Central Bank for permission to start releasing some of its excess capital from this year to shareholders. This is likely to take the form of a special dividend.
AIB managed to reduce its non-performing loans (NPLs) from €6.1 billion in December 2018 to €2.8 billion by the end of last year, assisted by two loan portfolio sales, resulting in an NPLs ratio of 5.4 per cent and leaving it in a better position to get ECB approval to release some surplus money.
Mortgage portfolio
Meanwhile, the lender is currently seeking to sell a portfolio of problem owner-occupier mortgages as it aims to reduce its NPLs ratio to below 4 per cent by the end of this year.
Performing loans grew 3 per cent to €58.8 billion last year, with new lending up 2 per cent to €12.3 million.
Mr Hunt noted how the spread of the coronavirus is a downside risk to the global and Irish economies. “It’s likely to have a near-term negative impact on a number of sectors, most obviously the hospitality sector,” he told analysts. “It is too early to quantify what that impact would be.”
Chief financial officer Donal Galvin said noted that the bank is currently only passing on to larger corporate customers the negative rates that is being applied by the ECB to some of the excess funds it is parking with the central bank.
However, he warned that it “will look to apply negative rates to businesses and high-net-worth individuals over the coming years”.
