Ireland is beginning to see the light at the end of the tunnel. Recent numbers from the Central Statistics Office provide the first real evidence of an export led recovery. Furthermore, leaving aside the issues around Anglo, the government is performing well as advocates of all things Irish both at home and on the international stage. However, Irish Banks are still causing concern. While they are beginning to get their house in order, we still feel they need to cut their costs further so more pain is required before their operations are in line with the commercial reality of the current market.
Earlier in the month, AIB announced their plans to downsize and to increase their redundancy programme by another 500 staff to 2,500. BOI is cutting its domestic workforce by 750. Ulster Bank has already shed 1,000 staff whilst some time back Irish Permanent TSB announced its plans to shed a more modest 360 jobs. As painful as it is to reduce the number of employees in the banking sector, we believe the banks are simply not cutting deep enough. They have a duty to their shareholders (in the case of AIB and Permanent TSB, the taxpayer) to become viable and to rebuild sustainable operations, capable of serving a very different economy. Here the future is based on entrepreneurs and indigenous and innovative businesses. Serving their needs is a very different proposition to the property based lending that fueled the crash.
We believe that collectively, the banks will need to axe another 10,000 staff from the domestic workforce, in order to deliver a viable and sustainable domestic banking operation. Firstly, lending is virtually non-existent, so supporting processing operations should be contracted to reflect this situation. For instance new mortgage business is at 2.5% or less than €1bn; down from its €40bn peak. Bank branches will become less relevant to savvy customers in the future, as mobile and other devices, offer convenience and enlightened customer-experiences. However, there is an unfortunate offset required, due to the large number of employees needed to support the current bad debt and arrears challenges in the short-term.
Ironically, managing arrears is a resource intensive activity that is resulting in a temporary and short-term need for staff, but as the economy improves, the staff levels within the banks will need to reduce.