Bawag costs drive at PTSB may see staff numbers rise first before it wields the axe

Once PTSB went up for sale in late October, the script – well, the opening act, at least – for any buyer was obvious. With PTSB’s cost base equating to 75 per cent of income – compared with a typical retail bank target of about 50 per cent – and total income per employee well below its larger Irish rivals and the western European average, the winner of the auction was always expected to cut the Irish bank’s staff base – whether that was a private equity firm or another bank. PTSB has cut more than 10 per cent of its workforce last year, reducing it to 2,918 full-time equivalents, and the bank’s income per employee is on track to amount to less than €240,000 this year. But that is still 40 per cent below the western European average in recent years, according to data from US management consulting firm Kearney. Austria’s fourth-largest banking group, Bawag, which emerged victorious on Tuesday with a bid of almost €1.62 billion for PTSB, had a cost-income ratio of just over 36 per cent last year, and it is on track to generate well over €600,000 per staff member this year. While Bawag’s deputy chief executive, Sat Shah, told reporters on a call this week it was “a little premature” to talk about potential job reductions, the deal’s governing document says it will “engage constructively with employee representatives and follow applicable information and consultation obligations in respect of any organisational changes”. Sound portentous? PTSB chief executive Eamonn Crowley last month set a target for the bank’s cost-to-income ratio to fall below 60 per cent by 2028 if left to its own devices. However, number crunchers who cover Bawag closely expect much more aggressive use of the red pen. UBS analyst Mate Nemes says the Austrians would need to take out about a fifth of PTSB’s €520 million running costs as of 2025 to achieve its goal for the takeover to boost group earnings per share (eps) by 20 per cent from 2028. Slashing 40 per cent of PTSB’s costs would deliver a 29 per cent earnings uplift. Bawag executives have said that they have not pencilled in any increases in PTSB’s income in its group eps objective. Any boost on the revenues front would be icing on the cake. The deal agreement says Bawag plans to carry out a “detailed review” of product lines it has on offer in Austria, Germany and the Netherlands with a view to rolling them out in Ireland. This will include household energy-efficiency loans, small-business and self-employed banking products, investment brokerage services and financing of residential and commercial property development and investment. While it’s a given that staff numbers will be significantly lower in three years’ time, employee numbers may have to move up before they move down. That’s because the Vienna-based group sees an easy win to save millions by axing swathes of contractors, consultants and outsourced work, taking that work back in-house, according to sources familiar with its initial thinking. PTSB, for example, uses third parties for various information technology (IT) systems and outsources the day-to-day management of mortgages acquired from Ulster Bank. The loan book stood at €6.2 billion when the Ulster Bank deal closed in late 2022. Still, PTSB executives would say that they keep a tight rein on such expenses. Insourcing – particularly of IT work – has been a focus of Bawag itself in recent years. In this State, Bank of Ireland has seen staff numbers rise 4 per cent over the past two years to almost 11,300, largely as a result of bringing more tech work in-house. Its chief executive, Myles O’Grady, is targeting about 3 per cent annual staff reduction over the next three years. Bawag has promised in the transaction agreement that for at least two years after the deal is completed, it will keep PTSB’s headquarters in Dublin as well as a “meaningful branch footprint across Ireland to continue to provide brick-and-mortar banking services to the Irish customers of PTSB, including access to cash in line with applicable regulation”. Anas Abuzaakouk, Bawag’s chief executive, told analysts on Tuesday that he sees the network “as a real asset”, but one that would probably evolve from being transactions-based towards advice – in line with a transition in its home market over the past 10 years. While the Austrian bank went through a painful restructuring in the decade following its own rescue acquisition by US investment group Cerberus in 2006, it was only at the end of that period that it really tackled its then network of more than 400 branches, including outlets run under a joint venture with Austria Post at the time. Its Austrian outlets now number about 70. The Irish access-to-cash rules, introduced late last year to keep ATMs and cash services at 2022 levels, mean any branch closure programme by PTSB would shift the burden on to the two larger banks – and could lead to a last-man-standing dynamic. Bawag has promised to give investors more information on how it plans to, as its executives put it, “fully self-fund” the deal when it reports quarterly figures on Tuesday. It will get a fair bit of help from Ireland to ease the burden. With the deal priced at an almost €400 million discount to PTSB’s reported inherent value, Bawag will be able to record a day-one gain through an accounting treatment known as negative goodwill (or badwill). PTSB also had about €200 million of surplus capital on its balance sheet at the end of 2025. It also secured regulatory approval earlier this year for a new model setting how much capital it needs to hold against its mortgage book. This will release a further €130 million. And, as reported by The Irish Times on Friday, Bawag also plans to enter a transaction that would essentially insure part of its loan book against loan losses above a certain level – freeing up more capital. The Austrian group is already one of the most active European banks in this particular field, known as the significant – or synthetic – risk transfer market. While Bawag is likely to recycle much of the money by investing in PTSB’s technology and growth, the overwhelming view among analysts is that the Austrians have landed one hell of a deal.