ANGLO IRISH Bank is pursuing legal action against former chief operating officer Tiarnan O’Mahony for the repayment of a €3.9 million golden handshake that he received when he left the bank in the 2005 financial year.

Anglo believes that the financial package given to Mr O’Mahony, who left the bank after missing on the top job to David Drumm, was not properly approved by shareholders at the time.

Mr O’Mahony could not be reached for comment yesterday.

But it is understood that he will counter that the payment was properly approved by Anglo’s shareholders.

Anglo is also in dispute with Mr O’Mahony over his pension from the bank. The now nationalised bank is trying to stop Mr O’Mahony from transferring his pension out of the company scheme and into a personal fund.

Proceedings relating to this matter were issued by Anglo in the High Court last October. Anglo had no comment to make yesterday.

It is not clear why the bank wants to stop Mr O’Mahony from transferring his pension, a normal right for any member of a pension scheme.

Reports have suggested that Mr O’Mahony might countersue the bank and its pension trustees to secure the transfer of his retirement funds.

Anglo paid €2.8 million into Mr O’Mahony’s pension in the financial year prior to him leaving the bank.

Mr O’Mahony was the government-appointed chairman of the State Pensions Board up until last year. He spent almost 20 years with Anglo, having joined the bank in 1985 and going on to lead its fundraising and private banking activities.

But he left in 2004 after losing out in the race to succeed Seán FitzPatrick as chief executive.

According to the recently published book, The FitzPatrick Tapes, Mr O’Mahony was the candidate favoured as the new chief executive by Whitehead Mann, a British executive recruitment firm that was hired to assess those who might succeed Mr FitzPatrick.

The book states that the recruiter concluded that Mr O’Mahony had “all the drive, determination, intellectual horsepower and rigour to take the organisation forward”.

But a four-man selection panel, chosen by the board of Anglo, plumped instead for Mr Drumm.

Mr O’Mahony subsequently went on to set up specialist financial group ISTC, raising €165 million in equity.

It was forced into examinership in late 2007 with investors and banks forced to write off millions.

Anglo is pursuing legal action against a number of former directors. It is chasing outstanding loans from Mr FitzPatrick, Mr Drumm and Tom Browne, the former head of its Irish lending division.