On Monday night Allied Irish Bank banked down on plans to pay $53 million in bonuses. The Irish Government intervened saying they would not bailout the bank in the future if the bonuses went ahead. AIB has already received $4.7 billion of the taxpayers money.
Today the Irish Independent revealed that AIB will be effectively nationalized by Christmas as their efforts to raise $13.1 billion has failed.
Although the bank is close to being nationalized, AIB was planning to give bonuses to about 2,400 staff. Now only John Foy, the AIB executive, a foreign exchange trader, who sued the bank last year claiming the bank was contractually obliged to pay him his bonus, will receive his money. Foy will receive $216,854, plus interest and legal costs.
A letter from the Minister for Finance Brian Lenihan, who is a barrister, said that nobody had envisaged the mess the bank would be in, two years ago, when these bonuses were agreed. Mr Lenihan said that State cash came with the condition of no bonuses.
Mr Lenihan said that he had studied the legal position on bonuses over the weekend. He also spoke with the Attorney General and Prime Minster Brian Cowen about the matter.
He said that the Irish Government’s intervention left the bank’s executives with no choice as they needed state cash to survive.
The letter said “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."
Mr Lenihan said the letter was ‘lawful’. He said “The Attorney General has advised me that it was lawful for the Government to make this request…The letter of itself is a supervening event in the context of the intended capitalisation of AIB. Legislation strengthens that position."
Over the weekend the press and opposition had said that the Government were only reacting to public outcry. James Reilly, Fine Gael deputy leader said Mr Lenihan had "belatedly and reluctantly caved in to public outrage and opposition pressure."
"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,” said Mr Reilly.