AIB may cut jobs as bad loans levels ‘normalise’

Bank would need to set aside provision of as much as €163m in event of no-deal Brexit

AIB’s net loans grew by €900 million to €60.9 billion during the year

AIB’s net loans grew by €900 million to €60.9 billion during the year

 

AIB, which reported a dip in profits for last year on Friday, has indicated that the 1,400-strong workforce in its loan-restructuring unit could be targeted for cuts as its bad debt levels decline to “normalised” levels.

Speaking to reporters, the bank’s new chief financial officer, Donal Galvin, said the focus remained on halving the bank’s non-performing loans ratio to about 5 per cent by the end of this year.

Any discussion on cost savings would be in the “medium term”, he said.

Bank executives declined to give a breakdown of contract workers and bank staff within the bad-loans unit, known as the financial solutions group.

AIB’s staff costs rose 3 per cent last year to €730 million as pay rises more than offset the impact of a 3 per cent reduction in average worker numbers to 9,801, according to its latest annual report. The bank’s total operating costs rose to 53 per cent of income from 49 per cent last year.

Mr Galvin, previously deputy chief financial officer and group treasurer, was confirmed on Friday as AIB’s new chief financial officer, succeeding Mark Bourke.

AIB also revealed on Friday that it is proposing a larger-than-expected 42 per cent jump in its annual dividend to €461 million, after its net loans grew and non-performing loans level declined 41 per cent to €6.1 billion last year. This was aided by the sale of soured portfolio to US private equity group Cerberus. In 2013 the bank had more than €30 billion of problem loans.

State dividends

The State, as 71 per cent shareholder, stands to receive €327.3 million in dividend payments.

The bank’s net loans grew by €900 million to €60.9 billion as new lending increased by 15 per cent to €12.1 billion, as households and large corporations took on additional debt, though small- to medium-sized firms held off making investments as they fretted about Brexit.

Pre-tax profit dipped to €1.25 billion for 2018 from €1.31 billion, with the previous year boosted by higher gains on sales of investment bonds as well as a spike in money received as distressed borrowers sold assets under loan-restructuring agreements.

Shares in the bank fell 2 per cent to €4.05 as analysts expressed disappointment as the bank’s common equity Tier 1 capital ratio, a level of capital reserves, ended 2018 unchanged at 17.5 per cent. A contribution to the ratio from growing profits was offset by a fall in value of bond investments late last year as financial markets wobbled, as well as planned dividend payout.

The bank is targeting a ratio of more than 13 per cent and much of investors’ near-term interest in AIB is predicated on the bank releasing excess capital from as early as next year.

Brexit provisions

Mr Galvin said the bank – in calculating various economic scenarios under Brexit – would need to set aside a provision of as much as €163 million in the event of the UK exiting the European Union in a disorderly manner.

Mr Hunt told reporters he had “never thought” there would be the current level of uncertainty about the outcome of Brexit just a month ahead of when the UK is scheduled to leave the EU.

Separately, the bank set aside an additional €35 million for customer refunds and compensation relating to the industry-wide tracker-mortgage scandal, bringing the total amount it has ringfenced to deal with the issue since 2015 to €265 million.

Group chairman Richard Pym highlighted in his statement in the annual report that ongoing pay restrictions and bonus bans since taxpayers stepped in to save the banks a decade ago was “a real concern”.

“Investors have raised this concern with me on many occasions,” he said. “These issues are, I know, politically and socially difficult to resolve but, as we stand currently, they have a real cost and materially impact both the value of the State’s holding in the banks and the economic efficiency of the lending markets that the banks operate in.”

Minister for Finance Paschal Donohoe used his stake in the bank to vote down AIB’s proposal as its annual general meeting last year to reintroduce a share bonus plan, before putting the issue of remuneration in the industry out to consultation.

While consultants Korn Ferry have signalled in early drafts of their report that the current system is unsustainable, Mr Donohoe has said in recent months that he has no plans to lift the restrictions

Mr Pym said AIB had “decided it is best not to propose new resolutions on remuneration” at the bank’s agm this year.