IRISH BANKING:AIB IS planning to restructure the core part of the business into three divisions covering retail, commercial and corporate with strengthened senior management controls across the bank.
The changes at the almost fully nationalised bank will be driven by the substantial reduction in the size of the bank as it offloads €19 billion in assets, mostly overseas, from a new non-core division under the Government’s three-year bank deleveraging plan.
AIB had previously been structured into autonomous or “siloed” units where lending decisions were removed from central management. This was blamed for the heavy losses on property lending.
A report into AIB’s risk management by consultants Deloitte found the structure of the bank had been too focused around divisional performance rather than overall group management.
An outside candidate is expected to be appointed by executive chairman David Hodgkinson as head of transformation to oversee the restructuring.
However, a mix of internal and external candidates is likely to be appointed to the bank’s new management team which may involve about a dozen new key roles.
The plans are still being finalised and have yet to be fully signed off by the Government authorities.
A spokesman for the bank declined to comment ahead of the bank’s 2010 results announcement next Tuesday when further details of the plan may be outlined.
Mr Hodgkinson told staff last month that the bank’s restructuring plan would require “radical change of a magnitude never before undertaken by AIB”.
The changes will result in substantial job losses across AIB, which employs 12,000 in the State, and are expected to lead to the departure of executives who held senior roles before the crisis.
The plan also involves further reforms to credit and risk management. A report by financial consultants Promontory for the Central Bank found that credit management at AIB had improved but that the information being provided to the board of the bank was “still patchy” and depended on “excessive manual intervention”.
The bank requires a further €13.3 billion, including a buffer of €2.8 billion, to meet loan losses under adverse scenarios following the Central Bank’s stress tests.
This brings the recapitalisation of the bank, which is 93 per cent State-owned, to €20.5 billion.
The bank’s residential mortgages showed the highest loss rate across the four lenders assessed under the Central Bank’s stress scenario, where property prices dropped 60 per cent from peak and failed to recover for a decade.
AIB and EBS have held preliminary talks to consider the process of merging the two lenders to form the second “pillar” bank under the Government’s plans for a restructured banking sector and the timing of the union, which one well-placed source estimated would take up to four months.
The building society would first have to be demutualised. The Minister for Finance has the power to do this under the special investment shares he received when the Government took control of the institution last year.
Sources stressed only preliminary work has been undertaken on the merger and the immediate focus was on customer retention.
