AIB set to shed 1,000 staff by 2022 as bad debt workload falls
CEO Hunt says it is inevitable that the bank will be smaller under new plan
AIB will be a smaller organisation in three years’ time, with a headcount of below 9,000 people compared with the current 10,000, according to chief executive Colin Hunt.
The lower headcount will form part of a three-year plan due to be submitted to its board next month.
Hunt said it would be done in a planned and agreed way.
This staff number of 9,000 people is based on the assumption that AIB will be offering the same number of services over the next three-year cycle.
However, fewer people will be employed in dealing with credit arrears as the bank works through its non-performing exposures.
“Over time, the bank’s headcount, based on an unchanged business offering, based on our current suite of products, based on our current strategy, it is inevitable that we will have a smaller workforce in the medium term,” he said.
“That is inevitable but we will do it in a way that is planned, we will do it in a way that’s agreed. This is not a January or February move,” he said.
“We’re in the last three months of a three year planning cycle. So the new planning cycle currently that we are working on, we will it bring to the board in November of this year. We will publish details of it when we bring our annual results to the market on 6th March 2020,” he added.
“Based on our current suite of products and services we will be a somewhat smaller organisation at the end of 2022 than we are at the end of 2019 I think.”
Around 20pc of staff now work in credit arrears and the bank will continue to employ staff in that area. “But certainly I do foresee a situation where over the next planning cycle that our headcount is below 9,000,” he said. Around 200 redundancies are currently being sought under a voluntary severance programme.
Hunt confirmed AIB is working towards a capital return to shareholders.
“A central plank of the IPO thesis in 2017 was that we would have a special distribution of excess capital. That remains a priority for us.
“We have a very strong capital position. I would like to see us commencing the process of returning excess capital to our shareholders — including all our shareholders — in 2020. But that is all subject to regulatory approval,” he said in a wide-ranging interview.
AIB carries out internal capital adequacy and internal liquidity assessments annually. “They form the basis for any sort of engagement of that nature with the regulator,” Hunt said.
AS A student at University College Cork, Colin Hunt spent his summer holidays working as an intern at AIB in his native Waterford. “It was actually pure fluke that I ended up working in a branch for two summers on the frontline, standing behind the counter — the counter was the primary interface in those days,” he says, sitting in a small meeting room in AIB’s ultra-modern new offices on Molesworth Street, Dublin.
“I’ve found it irresistible to come back to AIB over the course of my career,” he adds. “I worked in Goodbody’s for six years and that was part of AIB Capital Markets at the time.
“And then, when the opportunity came to come back three years ago, I seized it.
“Certainly, when I was 19 years old, working in a bank branch, I didn’t expect to be CEO. But it’s amazing the way life turns out.”
Having returned to the bank in 2016 as managing director of wholesale and institutional banking, he took over from Bernard Byrne as CEO last March, at a time when the firm faces an array of challenges — some old and some new.
Brexit is at the forefront of economic concerns and Hunt is acutely aware of the challenges which could lie ahead, even if an agreement is reached.
“Brexit has one of three possible outcomes: non-event, a mild event or a severe event. You think the weather forecasters give you a wide range of potential outcomes,” he says. “We have an extraordinarily wide range of potential outcomes.
“The difference between a mild Brexit and a severe Brexit shock on the economy is very, very, very significant. We’ve got to be prepared for all eventualities.”
Britain’s exit from the EU might be Ireland’s most immediate threat, but Hunt, an economist by background (“perhaps still by inclination”), says other global storm clouds are gathering. He is blunt in his assessment of where Ireland sits in this economic cycle.
“We are closer to the next recession than we are the last,” he says, pausing to carefully choose his words. “Predicting the timing of it is nigh on impossible. But there are an increasing number of straws in the wind suggesting that we are near or past the peak of the current cycle.
“You’re seeing that coming through in confidence indices, sentiment indices. We’re in a strong position today — unemployment at a 5pc level, wage growth solid, companies doing well again after a very difficult period. This is the time to prepare yourself.”
The bank itself is taking a cautious and prudent approach. “We have got to be sure the bank is in the best possible position to support our customers, regardless of the state of the economy. Because we weren’t in the position to support our customers the last time,” he says.
While this is a sobering position, Hunt’s deepest concerns reach far beyond economic cycles. Economists are used to dealing with cycles, he says, but the biggest challenge is the far more long-term threat of climate change.
While many companies have been accused of ‘green-washing’ their policies to ride a climate change wave of support, Hunt speaks passionately about the weight of responsibility on the bank and others in positions of influence.
“The great short-term, medium-term, longterm cause of our generation is to deal with the issue of climate change comprehensively and quickly,” he says. “Everybody has a role to play, and the bank wants to put at the centre of its own mission and its own strategy the climate agenda and the sustainability agenda.”
“I think what was once seen as maybe being a niche interest has now moved centre-stage and unlike Brexit, and unlike global trade tensions, it is genuinely existential,” he continues.
“Because it does threaten the way we live. It does threaten the future of the planet. And we’re at risk of handing to our children a planet in a worse state of repair than it was handed to us since the dark ages. And our children will never forgive us if we don’t fix this issue now.”
The bank has already announced several initiatives in this area, including its sponsorship of Ireland’s second Climate Finance Week in November, and its publication of annual sustainability reports. AIB has also committed to making €5bn of funding available to support Ireland’s transition to a lower-carbon economy.
Shareholders are slowly becoming more demanding in relation to how companies perform environmentally. “It’s not widespread but you are seeing that a number of investors are increasingly focused on the environmental impact of the companies in which they invest,” Hunt says.
But is AIB doing enough? As protesters gather this weekend to highlight our failings in relation to climate change, pressure will only increase on those in power to act.
“We will seek to do more and more and more with every passing quarter and every passing year, to work with our customers to help them transition to a lower-carbon economy. But, also, we’re very internally focused on doing what we can to ensure that our impact on the planet is minimalised,” says Hunt.
“It does require great effort right across Irish society. Businesses, and particularly banks, have a special role in accommodating this change and supporting the change that is necessary.”
Hunt is keen to rebuild the reputation of AIB, admitting that the crisis has “cast a long shadow” over the industry. The tracker mortgage scandal should never have happened, he says. “The restitutions are almost complete. We need to ensure that it never happens again.”
He acknowledges that work still needs to be done to restore the bank’s standing with Irish people. “Reputation can be lost in a second and it takes years to rebuild. But we are rebuilding our reputation and we will continue to do so by being ever more open, ever more transparent, ever more conscious of our broader responsibilities,” he says.
Yet the bank continues to deal with other hangovers from the past, some of which generate very negative headlines. Among the most contentious issues has been the sale of non-performing debt.
The bank, 71pc owned by the State, is now tackling more difficult residential loans, a process that has the potential to be highly controversial.
For Hunt, AIB needs to get the bank in the best shape possible as Ireland faces into new economic challenges. At the end of 2013, the bank had €31bn in non-performing exposures on its balance sheet.
At the end of the first half of this year, that was down to €4.7bn. “The vast bulk of that reduction — 90pc — has been driven by agreed restructuring by customers. And that’s what we want to do.
“We have 1,500 people, 15pc of the bank’s workforce, working in this area, trying to get restructuring agreed with customers. Because that’s our number-one preference; we want to retain the accounts.
“But even after that, after 10 years of work and even after having 15pc of staff working in this area, even after this huge decline, we still have a balance sheet that has a higher level of non-performing exposures compared with the European average.
“As part of the preparations for dealing with a storm that might lie ahead, we’ve got work to do to get the balance sheet into the best possible position. Before we start dealing with the problems of the next recession, we’ve got to have dealt with the problems created by the last recession.”
Staff retention continues to be an issue for the bank and that is linked to another highly contentious issue: banker pay and bonuses.
It is difficult to see any politician being willing to lift the cap, which would undoubtedly be a highly unpopular move with voters.
Hunt says that the bank is managing retention issues but has fears about finding the next generation of top Irish bankers. “Brexit has led to a huge increase in the number of financial service companies operating in Ireland,” he says. “There are not too many deep pools of financial talent within Dublin, so AIB is a fairly obvious place to come.”
Talented young employees are frequently snapped up.
“The concern for me is what happens in 15 or 20 years’ time when you expect that cohort to lead the institution; that is the big issue for me,” he says.
Other potential hurdles include possible disruption from fintech challengers. Hunt believes AIB is meeting its customers’ needs.
“In 2013, on a daily basis, we would see a little bit shy of 150,000 digital interactions. That number is now well north of 1.2 million,” he says, adding that the bank keeps its digital offering under constant review.
As the bank works its way through its non-performing loans, it will inevitably need fewer staff working in this area.
Hunt is preparing a new three-year plan for the bank, to be submitted to the board in November, and envisages that staff numbers will fall from 10,000 now to under 9,000.
It will be a reflection of the fact that remnants of the crash have been dealt with. “It is my number-one concern; my number-one ambition is to ensure that we never again repeat these issues that we are now dealing with,” says Hunt.
The three-year plan will put the bank on a footing for what Hunt believes are uncertain times.
“This is not the time for radical thinking,” he says. “It is very much focused on ensuring the bank is as strong as it possibly can be to withstand whatever pressures the cycle throws at us — to support our customers through the cycle and to stand ready to benefit from whatever opportunities arise in the next cycle.”