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Allied Irish Banks targets sharper staff cuts as annual profit falls

DUBLIN, March 6 (Reuters) - Allied Irish Banks (AIB) said it plans to cut its workforce to below 8,000 by 2022, a sharper reduction than previously flagged, after it reported on Friday a 23% dip in pre-exceptional full year profits before tax.

Chief Financial Officer Donal Galvin told Reuters that the bank, one of Ireland's two dominant lenders, would aim to make the cuts through negotiated voluntary severance.

Profits at AIB and main rival Bank of Ireland have fallen steadily from post-Irish banking crisis highs in 2015 amid a persistent low interest rate environment that has forced both to look for further cost cuts.

AIB set out new medium-term targets on Friday, which it said would sustainably generate shareholder value. The bank said it expected operating costs to increase by 2 to 3% this year - following a 5% rise to 1.5 billion euros ($1.7 billion) in 2019 - but that it would cut them back down to 1.5 billion euros by 2022.

To pay for investments, that includes reducing staff from 9,520 at the end of 2019, primarily through cuts involving those resolving legacy issues, as well as efficiencies achieved through digitalisation. The bank's chief executive had said as recently as October that it would target a headcount below 9,000 by 2022.

"The way in which we deal with employees in situations like this is to negotiate voluntary severance agreements for our staff members who and where this could be an interesting opportunity for them," Galvin told Reuters by phone.

Excluding exceptional items, AIB reported full-year pretax profit of 1.09 billion euros, down from 1.41 billion euros a year earlier.

Pre-exceptional profits topped 2 billion euros four years ago, shortly before the Irish government offloaded a 29% stake in the still majority-state owned lender in Europe's largest initial public offering (IPO) of 2017.

Including exceptional items such as the further 300 million euros the bank set aside to cover possible compensation owed to overcharged mortgage customers, the bank's profits last year fell to just 499 million euros.

As a result, it more than halved its proposed annual dividend to 217 million euros.

With a fully loaded tier one capital ratio of 16.4%, above its newly increased medium-term target of 14%, the bank said it intends to apply for regulatory approval to begin returning the excess capital to shareholders, ideally beginning this year via a multi-year programme.

AIB's ability to return excess capital to shareholders was a key selling point of the IPO.

Net interest margin, a metric showing the profitability of its lending, fell to 2.37% for the whole of 2019 from 2.47% in 2018 but finished the year at 2.25%. The bank also set a target of a return on tangible equity (ROTE) above 8% by 2022.

Bank of Ireland targeted further cost cuts when it reported a fall in profits last week, adding it would take longer than forecast to hit a return on tangible equity (ROTE) above 10%. ($1 = 0.8904 euros) (Reporting by Padraic Halpin; Editing by Susan Fenton)