THE GOVERNMENT is hoping that AIB can become one of the twin pillars of a restructured domestic banking sector. But the publication yesterday of the group’s 2010 results, showing a total loss of €10.2 billion – more than four times greater than the figure for 2009 – underlines the scale of the challenge ahead.
To help achieve the desired twin pillar status, the bank will require the injection of a further €13.3 billion of taxpayers’ money. And according to its own proposals, it will also need some 2,000 job cuts over the next two years and the sale of some of its non-core businesses. In this context, executive chairman David Hodgkinson said yesterday that he well understood the hurt and anger felt by so many people. AIB shareholders have seen their investment virtually wiped out. These include many of the 2,000 bank employees who will now lose their jobs. Likewise the public, as taxpayers and investors of last resort, have been forced to bear the extraordinary cost of rescuing the bank.
In Ireland in gloomy pre-boom years, the banks and the public service were generally seen as offering the best employment prospects in a difficult labour market where demand for jobs generally exceeded supply. For many jobseekers, the promise of good pay, secure employment and attractive pension provision had a compelling appeal. But those old certainties have vanished in the financial meltdown and 2,000 job losses in AIB are likely to be matched by significant redundancies in other institutions. Where banks were once facilitators of wealth creation through prudent lending, they have been transformed into agents of wealth destruction on a massive scale due to a reckless approach to the property sector. As Minister for Finance Michael Noonan recently pointed out, the likely (€70 billion) cost of recapitalising Irish banks over a two-year period will amount to 45 per cent of national income.
For those AIB employees whose jobs are at stake, the best hope is that the lay-offs can be achieved by voluntary redundancy and on a balanced and equitable basis across its various divisions. In parallel with moves to refinance and restructure the banks, the Central Bank has shown its determination to review the fitness of senior directors of those banks that have received government financial support. Since last year the financial regulator has acquired new powers to block senior bank appointments and to suspend or ban bank directors. Certainly, it is difficult to understand and particularly hard for the public to accept that those who presided over the financial crisis can have any role in bank restructuring.
One of the clearest lessons of the collapse of the banking sector relates to the failure of the banks to check what Mr Hodgkinson aptly described as “collective madness” on property. Above all, this phenomenon represented a monumental failure of corporate governance at board level. To help restore public confidence in the credibility of the regulatory system and in the competence of bank management, there must be a purging of all those who are clearly tainted by truly epic mistakes.