The downsizing of Ireland's banks

While news that Ireland has bowed to bailout pressures may help alleviate uncertainty around the country's fiscal position, it also raises the prospect of a fresh round of cuts within the domestic banking sector.

The full details of Ireland's loan from the EU/IMF have yet to be finalised, but it's believed that a rescue package of €80-90bn is on the cards. Central to this, rather obviously, is an increased ability to shore up the ailing banking system, and move them away from dependence on ECB funding.

However, Irish Taoiseach Brian Cowen has said that the country's banks will be made smaller "so that they can gradually be brought to stand on their own two feet once more", while EU finance minister Olli Rehn pointed to "a comprehensive range of measures - including deleveraging and restructuring of the banking sector".

Plenty there to raise anxiety levels for employees within the domestic banking sector.

Where the cuts are currently predicted

Much of the focus has been on the banks disposing of overseas and non-core assets, suggesting that in terms of potential job losses the impact on Ireland could be kept to a minimum.

However, it might not be that easy. AIB, for instance, has stalled the sale of its UK business due to a lack of decent bids. If this is indicative of investor appetite for Irish banking assets, then there's a danger of fire sales.

As Ciaran Callahan of NCB Stockbrokers said in a note this morning: "The non-core portfolios are expected to be put up for sale at deep discounts to international investors, with the government providing guarantees over future loan losses."

It's also worth noting, as we have previously, that a lot of the back office services to the banks' international divisions are provided in Ireland, meaning that they are potential targets for job losses.

Now that the government is looks likely to underpin further loan losses, "it is possible that the banks will be pushed to offload their UK and corporate lending books and it looks like the objective is to shrink the banks to much smaller entities," says Eamonn Hughes at Goodbody Stockbrokers.

It's also likely that the loss-making tracker mortgage loan books will be targeted, which represent a hefty 60% of AIB, BoI and Irish Life & Permanent's total portfolios, according to NCB's Callahan.

"A potential removal these loss making assets has the capacity to transform the viability of the banking businesses," he said.

Further nationalisation and why Bank of Ireland seems the place to be

AIB's announcement in its interim management statement that it would raise €6.6bn with a larger-than-expected rights issue later this month will take the state's stake in the bank to 90% and soma analysts are anticipating full-nationalisation.

Jim Power, an economist for Friends First, summed up the gloomy scenario, telling the Irish Independent: "If I were Brian Lenihan, I would pick up the telephone to Santander bank in Spain and offer AIB to them for a euro; but he would find no buyer."

Meanwhile, there are suggestions that the proposed sale of EBS to Irish Life & Permanent is on the back burner.

Bank of Ireland is not without its problems, but it's fast emerging as the best of a bad bunch. It's expected to emerge from the crisis in a decent position, with improved margin and less competition for assets; something that has been cited as a concern by the bank for over a year.