Finance union set for collision with banks with 6% pay hike demand

The Financial Services Union (FSU) appears set on a collision course with the main retail banks after saying it will seek a 6 per cent pay hike for staff in the industry to help them to deal with soaring living costs.

The planned demand comes as the three remaining retail banks in the State, in which taxpayers hold sizeable stakes, are seeking to rein in costs to build their profit returns to levels that are acceptable to investors in an era of ultra-low interest rates and muted loan book growth.

“The backdrop to pay negotiations this year is that all our main retail banks have reported a return to profitability in 2021, significantly earlier than any of them had envisaged,” said John O’Connell, general secretary of FSU, noting that lenders are also planning to return to paying dividends next year after regulators called on the sector to stall payouts during the height of the Covid-19 crisis.

AIB and Bank of Ireland delivered a combined net profit of €613 million for the first half of 2021, compared to a loss of almost €1.43 billion for the same period last year, when both set aside large provisions to cover expected bad loan losses resulting from the pandemic. AIB started releasing some of the money in the first half of this year, as loan losses are not expected to be as high as once feared. Bank of Ireland is expected by analysts to free up some of its reserves in the second half.

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“A turnaround in banking is welcome but it is the union’s role to argue and campaign for the proceeds of success to be shared,” Mr O’Connell said at a meeting on Thursday of the general council of the FSU. “If dividends are returning for shareholders, staff are entitled to expect an appropriate reward for their huge contribution in providing a stable banking system throughout the pandemic.”

Inflation

Irish consumer prices were growing at an annual rate of 5.1 per cent in October, up from 3.8 per cent a month earlier, according to the Central Statistics Office (CSO), amid a spike in inflation globally this year as economies reopened following the worst of coronavirus restrictions.

Mr O'Connell said the remaining banks in the market are set to benefit from decreased completion – referring to the planned exits of Ulster Bank and KBC Bank Ireland – as well as a growing economy. Bank of Ireland, Permanent TSB and AIB are preparing to carve up most of the combined loan books of Ulster Bank and KBC Ireland between them.

Still, analysts say the increased scale that these loan deals will bring, together with job reductions being implemented by remaining players, only give the remaining banks a fighting chance of rebuilding profitability to 8-10 times shareholders’ equity – a level that investors see as the sign of healthy banks.

The returns on equity of the three continuing banks ranged between 3.1 per cent and 6.6 per cent in 2019, before the pandemic struck.

AIB chief executive Colin Hunt was asked on Thursday at a virtual conference – the Financial Services Leaders Summit – about the decisions of Ulster Bank and KBC Ireland to quit the market.

“I assume the parent groups decided that the returns required to satisfy investor demand were just not available to them,” he said.