Bank of Ireland ‘to have fewer people in the future’

Bank of Ireland chief executive Francesca McDonagh said the bank will have "fewer people in the future" as she outlined plans to shave €200 million off its cost base by the end of 2021.

Speaking at the unveiling of new strategic targets at an investors day in London on Wednesday, Ms McDonagh also increased the amount the bank plans to spend overhauling the business by €500 million to €1.4 billion.

Bank of Ireland aims to reduce its cost base from €1.9 billion to €1.7 billion by 2021, helping it to lower its cost-income ratio to 50 per cent from 65 per cent last year, it said in a statement on Wednesday. The bank, which has seen its workforce fall almost 32 per cent from about 16,000 in 2008, will seek significant further reductions as a result of the programme.

Bank of Ireland has increased the estimated cost of its four-year information technology (IT) project, which began in 2016, by €250 million to €1.15 billion, while allocating a further €250 million to cover restructuring, including redundancies.

VHI ends deal with Warren Buffett’s Berkshire Hathaway

---

Brussels includes controversial tax plan as part of funding proposals

---

Barclays and HSBC shift some euro clearing from London to Frankfurt

---

Have you been out of work for longer than a year?

---

“We will have fewer people in the future than we had in the past,” Ms McDonagh said, adding that “we will work with our people through this change”.

The new strategic targets come eight-and-a-half months after Ms McDonagh took over the helm of the country’s largest bank by assets. Having shown signs of returning to net loan book growth in the first quarter following 45 per cent contraction in the past decade, the group expects its portfolio to grow by 20 per cent by 2021 to €90 billion. Two thirds of the growth is expected in Ireland, helped by an estimated doubling of the new mortgage market to €14 billion during the period.

The Irish Times reported last October that former Bank of Ireland chief executive Richie Boucher’s team had been working off estimates that the IT restructuring would lead to more than 1,000 job cuts. The bank announced in April that it will close its 27 back office service centres, affecting 420 employees and which is likely to lead to more than 200 redundancies. It is also currently in the process of cutting more than 200 middle management positions.

Ms McDonagh declined, when asked by reporters, to give an estimate for job cuts as a result of the transformation programme, saying she has “intentionally” not indicated a number internally or externally.

“Our strategic ambition is clear - to be the national champion Bank of Ireland, with UK and selective international diversification,” said Ms McDonagh. She said that the IT project delivered its first phase objective in April, allowing the bank to be able to see its exposure to individual customers across various products on one screen for the first time. The bank plans to launch a new mobile app in 2019.

Ms McDonagh reaffirmed the bank’s commitment to the UK market, which accounts for 40 per cent of its loans and where it has joint ventures with the Post Office and AA and works with mortgage intermediaries.

The group expects its return on tangible equity (RoTE) - a key gauge of banking profitability - in the UK to double from a “low single digit” percentage currently by investing in business areas that are generating good profitability and “repositioning” those where there is less certainty.

The bank signalled that it may shift its focus in the UK from mainstream mortgage lending towards first-time buyers and “under-serviced growth markets” like later-in-life and self-employed borrowers. It also revealed that it is carrying out a strategic review of its €700 million UK credit cards book, which may result in it this line of business being exited.

The group also set out an ambitious target for its life and pensions business to grow from a €1.4 billion annual premium equivalent to €2 billion in the lifetime of the strategic plan.

The group forecasts that its RoTE will rise to in excess of 10 per cent by 2021 from 6.9 per cent in 2017 and that shareholder dividends, which the bank resumed on last year’s profits for the first time in a decade, will grow over the medium term to 50 per cent of “sustainable earnings”.

Chief financial officer Andrew Keating told analysts that the bank will look at distributing any excess capital it has on its balance sheet after returning to a 50 per cent dividend pay-out ratio.

“We see the announcement as supportive of our investment thesis, given the additional clarity on areas of uncertainty, while we view the financial targets, particularly RoTE, as conservatively set,” said Davy analysts Diarmaid Sheridan and Stephen Lyons, who estimate a figure between 11-12 per cent as more likely.