Bank of Ireland keeping tight grip on costs as income expected to drop by 35-40%

Although Bank of Ireland's interim management statement said little about more possible job cuts, predictions of a 35-40% decline in profitability for 2010 will hardly be reassuring to its employees.

The first tranche of the 750 redundancies announced in July were implemented last week, with 270 roles going in BoI's UK and Northern Irish units.

The bank's IMS released today said that: "Further initiatives to reduce infrastructure costs and, regrettably, to reduce numbers employed have recently been announced and are being implemented."

In short, it continues to look for ways to shrink its operating costs, with the bank predicting expenses for 2010 to be "mid-single digit" lower than last year and 16% down from their peak. As well as the redundancies, pay and hiring freezes, and reduced variable compensation, remain de rigueur at BoI.

BoI is estimating that full-year profits will be down by 35-40% on the €1.5bn it earned in 2009, or around €900-975m.

So, how worried should BoI employees be at the prospect of further cuts? Central to the problems are "rating sensitive" outflows from its capital markets division and yet more deterioration of its loan to deposit ratio (from 145% in June to 160% now).

But, according to analysts, much of this occurred in the build up to this week's announcement around the extension of the state guarantee to end of June 2011.

"Most of the damage appears to have occurred in Q3, with the recent extension of the guarantee scheme likely to provide some respite in this regard," said Ciaran Callaghan, from NCB Stockbrokers in Dublin.

Despite the headline figure, the profit projections were broadly ahead of analysts' predictions. Davy, for instance, forecast €815m for 2010.

The biggest problem the bank faces is securing funding, suggests NCB, and this is largely driven by concerns over sovereign solvency, which is out of BoI's control. Currently, there's rumours circulating about a possible €80bn EU bailout for the country, something the finance ministry has subsequently denied.