AIB not the only Irish bank looking to cut its overheads in bid to return to profitability

AIB’s plan to shave €350 million off its cost base continues a five-year trend across Irish banks to reduce their overheads in a bid to stay afloat and to give themselves a chance of returning to profitability.

There are exceptions, of course. Irish Nationwide was shuttered by the State with its rump merged with the fag end of Anglo Irish Bank to form Irish Bank Resolution Corporation, which was put into liquidation in February in dramatic fashion by the Government.

The reductions in overheads have largely been driven by job cuts - a combination of voluntary severance and early retirements.

When you strip out businesses that have been sold, notably its subsidiary in Poland, AIB’s employee headcount reduced from 16,025 in 2008 to 13,429. Those numbers relate to full-time equivalents. The bank is planning to get this number down to about 11,000.

In May 2012, AIB agreed a voluntary severance scheme with its unions that will see 2,500 employees leave the bank by March 2014. This relates to AIB staff and does not include EBS Building Society, which was merged into the bank in 2011 at the Government's behest.

It’s not clear if the €350 million cut in overheads will result in additional headcount reduction or changes to work practices at AIB than those already agreed with staff.

What is clear is that the bank’s chief executive David Duffy and his colleagues are determined to drive down its overheads in a bid to return to profitability. AIB last year recorded a total loss of €3.6 billion.

This will include everything from radical alterations to pension benefits and significant operational changes, including outsourcing.

Duffy, along with his counterparts at Bank of Ireland and Permanent TSB, must also be mindful of the Government's direction last month to reduce their total payroll by between 6 and 10 per cent.

This followed hot on the heels of the Croke Park II agreement being reached in principle with union leaders. It was viewed as the Government visiting pain on the banks in the wake of pay cuts of up to 10 per cent being imposed on public servants.

AIB is not alone in shedding staff. On the day it published its 2012 annual results, Bank of Ireland said that it had set aside €57 million for additional redundancies this year. This is expected to involve about 500 staff leaving the bank.

It has already reduced its headcount by 5,000 since the peak. In addition, the bank recently announced that it would have go back to staff to seek changes to its pension scheme, which was €1.2 billion in the red at the end of 2012.

Ulster Bank, which is owned by Royal Bank of Scotland, commenced a voluntary severance programme in January 2012. The bank has never stated publicly how many jobs it is seeking to cut but the figure is believed to be 950 across its operations in the Republic and Northern Ireland. In 2009, it reduced its headcount by 1,000 in a voluntary programme that was over subscribed. It currently employs about 6,000 staff on the island.