Why there could be further job cuts at Ireland's biggest banks

Despite both AIB and Bank of Ireland's focus on shrinking operating expenses - and ongoing reduction of headcount - cost income ratios at both institutions remain sky high. It's therefore likely that more significant job cuts could be necessary going forward.

The supposed iron grip on costs at both banks hasn't had a great effect as revenues continue to tumble. The cost income ratio now stands at 62.7% at AIB (compared to 48.9% last year) and 61% at Bank of Ireland (when it was 56% in 2009).

Freezing headcount isn't enough

And, while both banks have rolled out redundancy plans as well as frozen headcount and pay, staff costs have yet to shrink considerably. Overall personnel expenses at AIB fell by 6% compared to last year (with headcount falling by 700) and, while 805 people have left BoI over the last 12 months, staff costs are down by just 9% year-on-year.

"Both Bank of Ireland and AIB have indicated a need to reduce their footprint on the retail side, which would inevitably have an impact on the number of jobs," says Oliver Gilvarry, head of research at Dolmen Securities. "So far, the fall off in net income interest is not even closely matched by the reduction in costs, so something has to give."

The job cuts so far may just come from the offloaded divisions

Bank of Ireland has already said it intends to cut 750 roles over the next two years, and AIB's restructuring under terms agreed with the EU will also see some headcount shrinkage. But this doesn't mean the remaining divisions will stay in tact.

"At Bank of Ireland, the cost income ratio in the Republic of Ireland division stands at 69%, so it's an obvious target for cuts," adds Gilvarry. "The 750 job losses may come from the businesses it's divesting, and then they will have to look at numbers elsewhere in the bank," he adds.

AIB also said last week that it's considering shaking up its retail network, as it looks to avoid coming under state control, which is inevitably going to lead to redundancies.

Impairment charges around loans and assets held for sale to Nama continue to weigh heavy on the institutions. Yesterday, Bank of Ireland reported a €1.2bn loss for the first half of 2010, while AIB last week slumped €2bn into the red during the same period.