Editor's take: Conservative cover from the credit crunch

Irish banks' sub-prime bruises pale in comparison to the battering banks have taken globally, but you shouldn't be popping the champagne corks just yet.

It's the moment of truth for the two big players in the Emerald Isle - Bank of Ireland and Allied Irish Bank - whose long-professed sanguine attitude surrounding the global credit crunch has finally been quantified.

BoI upped its write-downs from structured investment vehicles (SIVs) from an estimated €15m to €40m, while AIB's total credit crunch hit comes in at €39m from an exposure of €877m to sub-prime mortgages and other CDO/CLOs.

Such losses would not usually be a cause for celebration, but compared to Barclays' €2.2bn write-down and Royal Bank of Scotland's expected €1.26bn loss, Irish banks' notoriously conservative approach has clearly paid dividends.

The likes of Citigroup, UBS and Merrill Lynch are all wildly swinging the axe in the wake of whopping $10bn write-downs and the global picture for finance professionals looks increasingly unpleasant.

With AIB's total revenues up 12% on 2006 and Bank of Ireland expecting mid single-digit growth in revenues, Dublin's financial fraternity would perhaps be justified in thinking they'll be sitting relatively pretty in 2008.

But AIB's chief executive Eugene Sheehy shows no signs of optimism: "Every day some bank comes out with a howler. Banks have destroyed their credibility to a very significant degree over the last six months, and investors will be slow to forgive them. It will continue through 2008," he says.

What's more, Irish banks have their own problems. BoI says downward activity in the stock markets has dented its life business to the tune of €40m, and a weakening sterling has reduced its UK profits by €15m. Similarly, profits in AIB's capital markets division fell by 8% on last year and the bank is anticipating that continued economic turbulence will negatively affect business.

Still, analysts are predicting BoI's profits to come in at €2bn, and AIB has posted returns of €2.5bn, showing the conventional approach reaps its own rewards.

Overall, it seems the decision by Irish institutions to shy away from risky complex credit products has put employees in a relatively secure position going forward this year. Just don't expect expansion in the capital markets and corporate banking areas - recruiters tell us the outlook is freezing.

This 'wait-and-see' attitude to recruitment reinforces Irish banks' renowned pragmatism and may serve them well, until the global picture unfolds to reveal just how grim it is out there.