The banks are about to downsize and the fall guy – or gal – will be the ordinary bank worker
Next time you go into a bank, stand back and have a good look around.
What strikes you? Is it the quietness of the place, or the strategically positioned flowerpots? Or is it the ads for mortgages of the thirty-something couple on a beach, smiling to show their perfect teeth?
Or maybe it’s the thick curls of their laughing three year old perched securely on Dad’s shoulders, while the beautiful five year-old girl, head to toe in ‘‘Mini Boden’’, giggles beside Mum?
Look again and maybe you will notice something about the employees. The vast majority are women. Of the 40,000 people who are members of the Irish Bank Officials Association, 70 per cent are women. One in every 28 women employed in Ireland works in a high street bank. This is a phenomenal figure. In fact, one in every 45 people employed in Ireland works in a bank.
In the next twelve months we are going to see an employment bloodbath in the traditional Irish banks as they suffer a major retrenchment. The opening salvoes of this carnage were fired last week by Permanent TSB, when it announced plans to cut 15 per cent of its total staff.
Permanent TSB probably went first because it feels less political pressure to hold off, not having availed of the bank guarantee. However, it is not scaremongering to suggest that a 15 per cent cut across all the banks is likely. On present numbers, this would mean 6,000 people on good salaries with good jobs – and most of them are likely to be women.
In fact,15 per cent is the most benign scenario because the banks have to contract much more to become sustainable again.
In the boom, because so much of the growth came from reckless bank lending, loads of people had to be employed in the banks, which couldn’t ship the cash out of the doors quickly enough. The financial sector grew dramatically.
Just look at the loans to deposits ratio. In a normal banking system, the loans to deposit ratio is 100 per cent. This means that the banks are covering all their loans with an equal amount of deposits and the system is stable. As late as 2004 this was the case in Ireland. Then the bosses of the banks – many of whom are still drawing huge salaries from the same banks – decided to take advantage of the lax regulation, take more risks for more profit and borrow money from wherever they could in order to lend it out in Ireland.
(Don’t forget their bonuses were directly related to the share price of the bank so they had a direct incentive to boost profits and behave recklessly.) Thus began the process of wealth destruction. In mid 2008, lending of the ‘‘domestic Irish credit institutions’’ (as defined by the Central Bank of Ireland) stood at €505 billion. Deposits at these institutions stood at €420 billion.
Currently the loans stand at €390 billion and the deposits stand at €294 billion. So, just using those simple numbers, we can see that the banking sector in Ireland has shrunk by 23 per cent on the lending side and 30 per cent on the deposit side in the last two and half years.
But, of course, there is more. As part of the EU/IMF deal there is considerable pressure on the domestic guaranteed banks to reduce their loan to deposit ratios to close to 100 per cent in the near term. Considering their most recent figures have been in the 160 per cent range, it is obvious that the Irish banks will have to shrink their balance sheets by at least another 35 per cent – and this is making the rather large presumption that there will be no more fall in deposits at those banks in the coming year.
So, banks with rapidly shrinking balance sheets, and whose profits are being decimated will start cutting staff in large numbers very soon. Just judging from the shrinkage that is needed, it would seem that of the 40,000 currently employed it is possible that well over 10,000 will be out of work by year end.
Let’s see what will happen this year. There are only two ways they can do that. The first is to reduce lending dramatically to reduce loans. This is a process called deleveraging and it crushes an economy because it involves a massive reduction of credit in the system. But that is what has to happen to bring the banks back to a sustainable size. The other way you achieve a more manageable and prudent loan to deposit ratio is by increasing deposits. The way you increase deposits is you enter a deposit war where banks increase interest rates to attract in deposits to rebuild their balance sheets.
But once they get into a deposit war, the interest rates of deposits escalate. What does this do? Well it encourages people who are already worried to save. This increases the saving ratio and in so doing takes more money out of the system. But if people are saving and the banks are not lending because they have to curtail lending in order to get their loan to deposit ratios down, what happens?
The money gets stuck in the banking system. The banks, rather than becoming an instrument of credit distribution where your savings become my loans and the economy is lubricated, become the instrument of hoarding. For an economy there is nothing worse than hoarding because it means the economy shrinks from want of credit.
As the banks return to deposit based banking, they don’t need so many employees because there is no business. So they let people go. The way they make a profit in a declining market is to cut costs everywhere and the major cost is the staff.
So as the banks in Ireland return to normality after years of gorging themselves, the average bank worker suffers. This is deeply unfair because the average bank worker didn’t make all the bonuses and the cash in the boom. Unlike their bosses, they weren’t involved in the property syndicates that ultimately destroyed the wealth of the nation but temporarily made some people feel as rich as Croesus.
They didn’t run the treasury departments that blew the banks’ balance sheets by borrowing abroad like drunken sailors. In many cases the ordinary bank worker was a victim of the banks’ short-lived success because they were the ones paying the hugely inflated prices for houses – prices that were inflated by the very banks they worked for!
Like so much else in the past two years, it is the ordinary little guy or in the banks’ case little gal, who suffers.
How come I saw AIB quoted on the Irish Stock Exhange on the RTE News at One today? I thought they were supposed to be removed from that?
Is Rossa White the second most dilusioned man in Ireland (after Bertie of course).
Todays article in the IT would seem to suggest so.
http://www.irishtimes.com/newspaper/finance/2011/0207/1224289181975.html
David, suggesting that the average bank worker didn’t benefit from the boom is populist rhetoric. Yes, they didn’t benefit as much as those in the upper echelons in either absolute or percentage terms, but they did still benefit. Without the boom in the banking sector, many of these workers would be paid less, or even have been unemployed. This fact should be acknowledged both in terms of the banking sector, and the economy as a whole.
[…] This post was mentioned on Twitter by David McWilliams, Laura and Jarrod Bromley, Ronan Mooney. Ronan Mooney said: RT @davidmcw: New on the site: Don’t bank on having a job http://dlvr.it/G0G7Z […]
This may have been posted before but here is David on primetime in 2003 with a few of the “ordinary guys” about to take the housing plunge: http://www.youtube.com/watch?v=I8ypOqx95qw
What I want to know is that David said TSB didn’t have to get the bank guarantee so does this mean that TSB is a less risky place to deposit money than the other ones that did or are they safer because they are covered by the guarantee – or is the guarantee just a bluff anyway?
“Permanent TSB probably went first because it feels less political pressure to hold off, not having availed of the bank guarantee. ” That’s not really correct though ILP/PTSB doesn’t participate in the NAMA scheme nor has it needed any injection of capital (so far – there is a €200m capital raising target for May 2011 but the betting is that ILP will raise that privately). The only reason I’m commenting is that PTSB did benefit from the guarantee. And the guarantee is State aid (sure the banks pay 0.25% of guaranteed liabilities but the EC still recognise the banks get… Read more »
Ordinary bank staff have been shafted just as much as the equity holders, plus their managers agreed it was a good idea to keep buying bank shares. I’m not one, but would hate to have to put up with the every friday “sales” review. That short term shit caused the problem. Every CEO for the last 10 years should be stripped of their wealth, they have stripped us of ours. And I don’t think it was pre-planned malice, just sheer incompetence and utter greed. They thought it would go up forever. If I was grading 5 year olds, they’d get… Read more »
Why are the responsible white collar arrogant banking circle thieves who got our nation into this the greatest economic mess in the nations history now not as yet in a clearly visible line up for gaol? After a life time of work in support of this country what are my concerns, as an average citizen, as we head into this forthcoming almost hobsons choice election? For my part, like thousands of others, mortgage is the big personal issue. Negative equity etc., More help is needed to cushion the ordinary citizen (who did not contribute to the madness in the Banks)… Read more »
I disagree. We are still avoiding the issue at the centre of the problem – us. The Irish concept of lifestyle is bankrupt. It was bankrupt, before we went on the binge. The ‘1000mile round trip pissup’, commuting from Carlow to Swords, the state sector employing people who are not fit to work in the private sector and who are in the know, and the ‘plenty more where that came from’ era – all completely unsustainable. Let’s be honest. It is all delusional and based on arrogance. Thee Irish concept of management is flawed. Close the IMI and declare IBEC… Read more »
One of Lenihan’s arguments has been that if we did not look after the bank bondholders that we would have been shut out of the sovereign bond markets. And this has been disputed. In fact it has been a big bone of contention. Yesterday, I read this. http://www.independent.ie/business/irish/aviva-shuns-irish-bonds-2527368.html And if we go to here we can see the list that pruports to be the list of anglo Bondholders – and which none of the list members have actually ever denied publicly. http://www.politics.ie/economy/140523-anglo-irish-bank-bondholders-revealed.html This is an enormous embarrassment for Fianna Fail. In fact it is off the richter scale. It also… Read more »
I am amazed the banking cull that is to come hasn’t happened sooner. Naturally the banks will ‘retrench’ (appropriate word as you shall see), they have been asset stripping, building up their balance sheets, closing branches and laying off staff (plus increased their interest rates, lest we forget). I am sorry to say it, while banking staff may be nice and friendly they are either wittingly or unwittingly part of an appalling system which was allowed to run largely unregulated, something free marketeers like Friedman, Greenspan and others championed along with their political servants. The banking lay offs are but… Read more »
By the way – we are hearing about banks where the managers in D4 instructed all the staff – whenever they were on a telephone call to ask the customers questions like “Do you want a car loan ? “…or a home improvement loan, or a mortgage, or a lifestyle loan…etc.. And the staff’s telephone calls were monitored. If the staff were not obeying their orders, they were liable to be brought before their branch manager and questioned concerning their ‘lack of initiative’. Basically, we have seen the hierarchy in some banks pushing the staff to push loans on people.… Read more »
This attitude drives me mad – the employees you discuss above might not have directly made the disastrous decisions but they certainly benefited much more than most over the last few years. The fact that the banks have continued to pay inflated salaries & excessive perks to their employees for the last few years is a national scandal. They have been receiving funding from the taxpayer on one hand and dolling it out to staff who have had less and less to do as the banks business imploded. Surely the real sympathy should be reserved for those in the real… Read more »
Bank stories number 1. A significant bank in Ireland was giving lots of loans to developers. Here is a story that was common place at the height of the boom. The developers all had helicopters. The developers would tell the loan executives – “listen that sports even that is on in [ pick the location in the UK or France] -how about we fly you over in the chopper, put you in the corporate box, give you a good time, etc.. and then fly you home again.” Then some time later, the executives would go to the said finance house… Read more »
Banking in Ireland – Story number 2. Again from the height of the Binge mania – about the time when people were flying to Manhattan to do the shopping, and wanted to let everybody know they were doin it. An Irish Finance house decided that it wanted to expand agressively it’s share in Credit cards in Ireland. Six months after the roll out of the plan – targets were not being met. Managers were afraid of their managers etc.. And bonuses would not be met. In fact this was a big plan for the corporate organization, an issue of pride.… Read more »
Good discussion (the same old discussion) here on the pros and cons of relief for those in trouble with mortgage repayments: http://www.irisheconomy.ie/index.php/2011/02/05/fine-gael%e2%80%99s-%e2%80%9cnegative-equity%e2%80%9d-proposal/#comments Quote: “We have too many holier than thou people in Ireland and have had that surplus for centuries. Time we came to our senses. There is no gain to be had from crippling people for life.” It’s easy for all of us to moralize and so I welcome David’s article. If you are unemployed you are out of work no matter what you did for a living beforehand. In some ways this economics thing is simple and it’s… Read more »
I still believe there is something very very big and explosive yet to happen that we have not yet thought about and that is my greatest fear .So much revelations have now passed the denial stage into the open forum .Surprises must be lurking deep in the political and financial undergrowth and there will be no crocodile tears when these are found out.
Will a change of government reveal this new monster ?Who will find it ?Who will be implicated ? Who will go to jail?
The Irish Banking Federation have a lot to answer for and for contributing to the loss of jobs .Why were they in denial?
The big explosive thing that has yet to happen that I am worried about is runaway climate change http://wakeupfreakout.org/film/tipping.html – this issue is far more important that economies and growth from what I am reading in scientific environmental articles – the wellbeing of future generations depends on changing the accustomed model of economic growth at any cost to the environment. Would like to see an article from Daivd about reconciling these issues – concern about the economy is detracting from the pressing issue of climate change – scientists are saying there is less than 10 years to stop runaway climate… Read more »
A little light relief. Sort of…..
http://paul.kedrosky.com/archives/2011/02/michael_lewis_g_1.html
I am convinced that if 90% of the banking industry disappeared the world economy could still function perfectly well or even better. I don’t have any data to back that up but that’s the only conclusion from observing the banks behaviour over the past decade. Nearly all of it is just a three card trick, moving everybody’s savings and loans around and diverting as much as possible into the hands of the bankers without people noticing. The remaining productive 10% is just a commodity business and most of that has been automated and computerised for many years now. The most… Read more »
I have two things to say from reading your article, I enjoyed your view David. One. If 10,000 more people become unemployed, then that increases the burden on the state via job seekers benefit and twelve months later a means tested payment of job seekers allowance. Also if these banking ladies are single with a mortgage or with an unemployed husband, they will also need to seek a Mortgage interest supplement, but only on the first mortgage! (If they re-mortgaged, she/he/they carry that debt burden themselves). Two. I cam across this site today for anyone in trouble with their homes.… Read more »
fianna fail allowed the banks to overstretch because they failed to regulate them and and they all had their dirty little fingers in the property pie.They now desert the sinking ship but should have been made to walk the plank !Disband the party and cancel all payments and pensions to them immediately.Thanks to the fuckers we now have,
NO JOBS
NO HEALTH SERVICE
NO PROPER MANUFACTURING INDUSTRY
NO TOURISTS
NEGATIVE EQUITY
NO SALT
NO ROADSWEEPERS
NAMA
IMF
We need real help and we need it now WTF can we do
I reckon this chap was asking Jack O’Connor or maybe the Democratic Party of the USA for advice on what to do…..
http://www.breakingnews.ie/world/mubarak-seeks-support-with-pay-rise-for-state-employees-492579.html
Has M H Mubarak been reading the work of J M Keynes….or maybe he was studying the policies of Bertie Ahern ?
Next thing we will find out, the Egyptian version of the FAI will be building a big circus maximus complex for the mass to find entertainment.
Not often that I read an article by David that lends support to the blanket banking guarantee of 2008 but this one does! David states that the rapid shrinking of the balance sheet now required will result in 10,000 job losses. However how many of the 50,000 bank employees would have had a job at all in 2009 if their employers were let go to the wall? We can never know how many direct and indirect banking job losses there would have been if no guarantee were given in Sept 2008 and there are many who say that another 30,000-40,000… Read more »
http://www.politics.ie/media/150443-pat-kennys-business-partnership-dunne-bradshaw-quinlan.html
Thanks to a poster at politics.ie – Pat Kennys business deals with Nama developers, Dunne Bradshaw and Quinlan.
The Game`s Up Lads http://www.thegamesuplads.com/
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http://colmbrazel.wordpress.com/2011/02/08/the-default-11-gombeen-enda-to-lead-zombie-economy/
*****
A sentence (“It seems that Ireland…” in the middle of this a recent post from irisheconomy.ie says what I’ve been thinking for a long time now: “20. Keith Cunneen Says: February 5th, 2011 at 4:38 pm Our elite are too dependent on foregin credit – they want their bank accounts to remain in Euros and that pretty much sums up our predicament. Iceland was blessed with a collapsed Krona so therefore most sections of society including the middle class has nothing left to lose. You have to be at least serious about rejecting the Euro as that is the basis… Read more »
I know a BOI branch manager who cleard 200k oper annum during the boom.Even though a large proportion of the lending he approved has gone awol, he still retains his cushy job.His dim son is deputy manager of another branch !!!! Both are up to their eyes in debt.Gobshites ruining the asylum.
David is right that there were plenty of people hired in the banks the same as construction during the boom years. As boom years are not sustainable those are not really real sustainable jobs. As with the construction sector these peoples choices are to 1. Retrain 2. Find another job 3. Set up their own business with the pay off money 4. Emigrate They will need the proper support to do these things. Their skills are no longer needed in the Irish banking/construction sector in the medium term, they need to think hard about what other skills they can offer… Read more »
It could be argued that we would be in this mess anyway if there were no debt crises. If there were enough houses built to meet demand then the building trade would have slowed right down anyway leaving damn all tax and vat flowing into the government. We would still have a predicament in many ways.
A poor article David. Why do you advocate protecting bank employees and more significantly female employees? What about civil engineering contractors who have had to let go thousands of engineers, technicians, carpenters etc…. who happen to be mostly male? These people have been suffering since 2008 and they didn’t cause the banking crisis either.
I’m sure you’re aware that we wouldn’t have had as big a property boom if we had less women in the workforce, i.e. the rise in double income couples/families correlates with increased property prices.
I think the article while interesting hints at a much bigger issue facing the country…an inevitable banking collapse with no retail banking and no immediate means of conducting business for most of us. 0) The EU banks are bust. 1) We have been prevented from letting banks fold in Ireland to prop up the EU banking system. 2) to get better terms on the bailout needed for `1) we are asked to harmonised our tax. 3) if we harmonise taxes we will be utterly unable to support the bailout terms even at the new level as we will have killed… Read more »
Crematorium will heat Public Swimming Pool http://news.sky.com/skynews/Home/UK-News/Redditch-Plans-To-Heat-A-Public-Swimming-Pool-With-Heat-From-Adjacent-Crematorium-Get-The-Go-Ahead/Article/201102215925892?lpos=UK_News_Second_Home_Page_Article_Teaser_Region_1&lid=ARTICLE_15925892_Redditch%3A_Plans_To_Heat_A_Public_Swimming_Pool_With_Heat_From_Adjacent_Crematorium_Get_The_Go_Ahead How the dead will give life back !Does this mean there is life after death ?Imagine dying and ending up in a swimming pool !Maybe if you stay there long enough you could complete a course and become a lifeguard. There is something aching in the above heading .Imagine Anglo Irish Bank has a house for everyone in the audiance !All you do is Text what word should come after Berti …….and send it David Krook Drummer a hard knocker from The Bronx . Imagine a wheel of fortune then you do not… Read more »
from someone who has worked in the past in Bank of Ireland as a bank employee, I saw first-hand what you refer to as the lower echelons of the bank – the ordinary bank employee. They DID benefit from the bank’s; the got bank mortgage and loans at a good rate to buy their houses and be well assured most of them bought them at the right time. They don’t pay fees and charges either and get preferential treatment. To me the whole banking system was just there for the benefit of all employees banking purposes from the very top… Read more »
Well that says it all for me. What susan redmond is implying is that everyone has blood on their hands. If I hadn’t been away from 1989 – 2010 earning an honest living elsewhere and working my nuts off then I would probably have it on my own hands too. Of course I’m not assigning responsibility (or blame) to anyone and everyone but a lot of Irish people would want to hold their hands up honestly and take responsibility for digging themselves into the shit hole(s) where they now find themselves. Why did nobody shout stop? Greed, that’s why.
Nah, didn’t mean everyone Colin. Tried to qualify that but just didn’t bother taking out the first ‘everyone’ in my post. You were right not to buy; if I was you I wouldn’t bother – ever. Unless they are giving away the bloody houses. It isn’t fair. I would expect a lot of people to lose their jobs in banks soon. Personally I think they should set up a whole new, untainted banking organisation/brand, with initial support from the government, and forcibly close or merge the other ones.
Versailles – the corridors of power are rather very busy today in Paris and Sarky has Merkel beside him a lot lately and they have placed their differences aside for now .What unites them both is their common enemy Irl .Yes thats US . We have united the enemies of the last WW11 .Even the collaborators and the resistents are playing boules together .Thats unheard of.Even watching them I can see that they cheating in that game anyway so they dont care. Les Securite Fiscale Irlandaise is a top secret document currently in the Charlemaigne Exedra and away from the… Read more »
[b]The ‘Debate’…stage managed?[/b]
Did Martin and Gilmore see the questions before the Debate took place?
HI all, I’ve been reading this site for nearly four years now and I want to say thank-you to you David for always striving to bring the truth to the people. At the moment the people need the truth more than ever if they are to choose wisely in the coming election. Can David, or any of the other well-informed commentators here, please provide some basic figures (backed up) to clarify for the people (including me) where the FF, FG and ILP plans will leave us. We the people need to know the following: 1. How much will we owe… Read more »
Enda Kenny may have been duped. I think Cowen and his last couple of speaches featuring the Irish language tugged on the heart strings of the diehards. When Kenny said he will not make it a compulsory subject in the leaving, was this well flagged or known by a FF mole? Many in the Gaeltachts who may have beeen on the fence are heading back to FF as far as I can tell. Disaster! Even though I dont hold out any hope for The golden haired boy Enda anyway. just a thought.
Poor show. It’s stretching things when you hint at feeling sorry for bank workers. They are finding out that they are prisoners of the system they worshipped and that their goose is cooked Attempting to appeal to bank workers shows us just how conservative, middle of the road and vanilla this place really is. Talk about being out of step. Jees. They will have to do what everyone else has to do – retrain for a new career. Send them all on fas courses Meanwhile back in the real world people are rioting because they cant afford food. They are… Read more »
The information below may be of interest to posters and it is free. I am not back in Dublin until late afternoon on Saturday. The Market Studios, Corner of Halston St & Mary’s Lane, Dublin 7 through the city centre ending at the docklands. Meeting at The Market Studios off Capel st at 1pm. Then off at once into the city to search for the many buildings which have been secretly pushed through the revolving doors of the toxic banks colossal vault of deeds. Free lunchtime guided tour that promises a thoughtful yet playful search for meaning in the wake… Read more »
And so it begins -> http://www.irishtimes.com/newspaper/breaking/2011/0412/breaking4.html