Worrying implications of Ireland's bond woes

The spectre of full nationalisation of AIB and questions about the viability of NAMA have been raised as Ireland's borrowing costs soar to an 11-year high.

Ireland's ten-year bond yields hit the worrying level of 8.64% yesterday and, so far today, look set to continue to rise. And, as irisheconomy.ie highlights, yields on both the four-year (8.34%) and two-year (6.66%) have also been increasing to perturbing levels over the last month.

While much of the world's attention has been focused on whether this means Ireland is on the brink of going cap in hand to the International Monetary Fund for a Greek-style bailout, these developments also have implications for employment in the financial sector.

The problems at AIB

Firstly, there's the suggestion that AIB will have to be fully nationalised, as the cost of insuring bonds in the bank surge to record levels.

Harpeet Parhar, a credit strategist at Credit Agricole, told the Irish Independent: "Investors are nervous that under the concept of burden sharing, the Government may try to force through substantial haircuts on Allied Irish subordinated bonds. One only has to look at what happened with Anglo Irish Bank for precedent."

From an employment perspective, perhaps Anglo Irish isn't a good precedent, since its headcount is substantially lower than that of AIB. Anglo has cut 22% of headcount, but this still amounts to a comparatively small figure of 393 people.

While AIB is in the midst of divesting assets at the behest of the EU's restructuring plans, a bigger government stake would likely mean these demands are stepped up.

A better example would be to look at the UK, where both RBS and Lloyds (which admittedly has had to digest HBOS) have so-far made scary cuts after accepting state aid. Lloyds has made a total of 22,500 redundancies, while RBS has shown 20,000 people the door over the last two years.

This represents 11% of RBS's total headcount of 170,000 global headcount in 2008. With 24,500 employees, it is of course infeasible for AIB to make similar cuts, but a proportionate reduction in headcount would still be nearly 3,000 people.

Questions raised over NAMA

In his speech to the International Financial Services Summit in Dublin yesterday, Central Bank governor Patrick Honohan conceded that "investors were not fully convinced" that NAMA had helped to build confidence in the country's finances and raised the prospect of foreign investment.

"From a national point of view, the entry of foreign purchasers for some or all of the banks would help transfer both credit and liquidity risk to those in a better position to bear them," he said.

Aside from the fact that any foreign investor is unlikely to maintain current staffing levels with the debt stricken banks, there's also the question about what will happen to those in NAMA-related positions.

NAMA itself created around 75 positions at the beginning of the year, which attracted a slew of applications from financial services professional keen for a secure position. It's likely reduced activity could lead to some thumb-twiddling and potentially a need to scale back staff numbers.

Then there's the NAMA teams within the banks, which have predominantly been made up of people transferring across from other divisions. Anglo, for instance employs 92 people in its NAMA unit. Again these are obvious targets for downsizing if external investors take the reins.

Goodbody's Dermot O'Leary wrote yesterday that the move "doesn't come as a great surprise. It has been clear for some time that Irish banks are unable to fund themselves on their own."