Allied Irish Bank's huge bonus plan abandoned
AIB last night dramatically backed down on plans to pay out €40m in bonuses after the Government said it would not support the bank any more if the payments went ahead.
Separately, the Irish Independent can reveal the bank is on course to be effectively nationalised before Christmas after attempts to raise €9.8bn from other sources failed.
About 2,400 AIB staff were due to receive the money this week, even though the bank has already received €3.5bn from taxpayers to help absorb huge losses on property loans.
Only one AIB executive, John Foy, a foreign exchange trader, gets a bonus now, picking up €161,000, plus interest and his legal costs. Other executives still have the option to take legal action, but winning their case could now be difficult, lawyers said.
The Government, in a letter to AIB, said nobody envisaged the mess the bank would end up in when the original bonus deals were agreed two years ago.
In the letter, Finance Minister Brian Lenihan said a "supervening" event had changed everything. Now state cash came with a key condition: no bonuses.
Mr Lenihan, a barrister, said he had studied the legal position on bonuses himself over the weekend.
The intervention by the Government left directors with "no choice" but to comply given that the bank needed fresh cash to survive, he said.
In his letter to the chairman of AIB, Mr Lenihan said he was "extremely unhappy" at the prospect of substantial sums being paid in bonuses to AIB staff.
"I wish to inform you that the provision of further state funding to AIB will be conditional, inter alia, on the non-payment of any bonuses, no matter when they may have been earned," the letter stated.
Mr Lenihan said he spent the weekend researching the potential solutions and discussing them with the Attorney General and Taoiseach Brian Cowen.
He refused to be drawn on whether there remained the threat of future legal action and claims.
Instead, Mr Lenihan insisted the letter to AIB was "lawful" and would not have been written unless the Government was confident it protected the State.
"The Attorney General has advised me that it was lawful for the Government to make this request," Mr Lenihan said.
"The letter of itself is a supervening event in the context of the intended capitalisation of AIB. Legislation strengthens that position."
When pressed on why this action hadn't been taken last week and if it was simply a reaction to the public uproar, Mr Lenihan said the Government had at all stages expressed "intense dislike" for what was happening.
Over the weekend, he reflected on the new taxes on bonuses, the legal complexities and solutions, and spent a "considerable" amount of time researching the matter himself.
The imminent capitalisation provided the context and conditions for writing to AIB, Mr Lenihan said.
The bank board, Mr Lenihan said, had to act in the interests of the bank as a whole and it was in their interests to obtain capital.
The "egregious" banking practices of the past could not be continued. "A line has to be drawn in relation to them," Mr Lenihan said.
The opposition parties will be briefed on the new legislation this morning and will be invited to support it.
"I hope they'll put national interests first," Mr Lenihan said.
Fine Gael deputy leader James Reilly said Mr Lenihan had "belatedly and reluctantly caved in to public outrage and opposition pressure" over the AIB bonuses.
"When the Government took a majority stake in AIB two years ago, it should have insisted that bonuses or increases in salaries could only be sanctioned by the minister.
"Because the Government failed to do so, AIB was free to award bonuses off its own bat," Mr Reilly said.
"All the trauma and public anger of the last week could have been avoided, if only the Government had acted at the right time."
Dr Reilly also maintained Fianna Fail's decision to vote on the bailout was a political stunt designed to deflect attention away from the dismal nature of the deal.
Source Irish Independent