AIB Deepens Cost Cuts as 1,500 Bankers Set to Exit

(Bloomberg) -- AIB Group Plc shares rose to a nine-month high as the Irish bank moved to slash costs and reshape its U.K. business against the backdrop of the pandemic and Brexit.

The Dublin-based lender aims to reduce costs to 1.35 billion euros ($1.63 billion) by 2023, below the 1.5 billion-euro target it outlined in March, and will exit small business lending in Great Britain.

It will restart a plan to cut about 1,500 jobs early next year and vacate half its offices in the Irish capital. AIB had about 9,500 staff at the end of 2019.

“We have seen something of the order of 10 years of change in the space of 10 months,” Chief Executive Officer Colin Hunt told analysts on a call in Dublin on Wednesday.

Like banks across Europe, AIB is grappling with the lower-for-longer interest rate environment which has strangled growth and the impact of the coronavirus on its key markets. For Hunt, an extra worry is Brexit, given Ireland stands to be the European Union economy with most to lose from the U.K.’s exit from the bloc.

AIB will exit about 1 billion pounds’ ($1.3 billion) of assets by shutting its small business lending operation in Britain, Chief Financial Officer Donal Galvin said on the call. The bank’s Great Britain loan book was worth about 5.6 billion pounds at the end of June.

The lender can see the merits of a share buyback instead of a dividend, Galvin said, although it is “premature to get into a detailed discussion” on the issue. AIB shares rose as much as 6.6% in Dublin to 1.69 euros, the highest level since March.

As well as cutting costs, Hunt is anxious to find new sources of income. The bank is in “active discussions with a number of parties” to boost the bank’s wealth management, life savings and investment products, Hunt said.

AIB also:

• affirmed 8% return on target capital by 2023
• retained its fully loaded CET1 ratio target of 14%, a key metric of the firm’s ability to absorb shocks
• sees 400 million euro restructuring charge over 2021, 2022
• says about 88% of borrowers ending payment breaks have returned to full principal and interest payments

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