DIRECTORS AND top executives in Allied Irish Banks (AIB) and Bank of Ireland are facing big cuts in their pay as a condition of the banks’ recapitalisation by the State, the terms of which could be published as early as today.

As the Government worked on the final touches of a plan to provide up to €4 billion in new State capital to each bank, Taoiseach Brian Cowen told the Dáil that he expected the upper limit on top-echelon pay in the two institutions to be cut by at least 25 per cent.

Although well-placed sources in political circles say the Government also wants significant changes to the top management and boards of both banks when they receive public money, it is not yet clear whether there will be any immediate developments on that front.

Tánaiste Mary Coughlan said on RTÉ television last evening that the Government’s intention was to bring the recapitalisation process to conclusion very quickly.

The Cabinet has already signed off on draft legislation to give effect to the recapitalisation with money from the National Pension Reserve Fund, most likely by way of an investment in preference shares bearing an annual interest rate in the region of 8 per cent.

Contrary to expectation earlier this week, it now seems unlikely that the Government would provide a scheme to insure the banks against their losses on loans to property developers. Having also examined the possibility of creating a “bad” bank for the most toxic loans in the two institutions, the Government is now considered to be unwilling to go down that road in the first instance.

However, the banks are still pushing for an extension to the two-year State guarantee on their liabilities. Financial sources say an extension would bring the guarantee into line with comparable international schemes while protecting the Government investment in the banks by making it easier them to raise money-market funds with a maturity beyond September next year.

“If there were to be recapitalisation, I would expect the directors’ fees to be cut by 25 per cent and I would expect that when they appoint their top executives, there would be an upper limit on remuneration. I would expect that whatever it is at the moment would be cut by at least another 25 per cent as well,” Mr Cowen said.

In this respect, the Taoiseach cited the work of the covered institutions remuneration oversight committee, whose report on remuneration policy in the State-guaranteed institutions is due next month. Minister for Finance Brian Lenihan will take further steps in light of the report to ensure a close alignment between top-level pay in the banks, the maintenance of financial stability and principles of fairness and equity.

Responding to Mr Cowen’s remarks, Bank of Ireland’s spokesman said it was engaged in a process with the Government’s remuneration committee. “The Taoiseach’s comments will be taken into account as part of that process.” AIB’s spokeswoman said Mr Cowen’s comments on pay cuts had not been “directly” put to the bank. “When they are we will obviously discuss and consider the details of the proposal.”