The issue of the pay of AIB’s chief executive is again back in the news as the bank reports bumper annual results. The bank and the Minister for Finance are discussing the terms of a review of the issue, as the State shareholding in AIB falls. This has been a controversial topic as AIB consumed €20.8 billion of taxpayer money as a consequence of its misadventures in the property market almost 20 years ago. Some €13.7 billion has been recouped and the bank said this week that it plans to buy back €1 billion of its shares from the Government.
The best estimate is that the State’s remaining shareholding – it acquired 100 per cent of the failed bank when it was nationalised in 2010 – is worth €4.6 billion. Adding this all together leaves a deficit of €1.5 billion.
There have been and will continue to be substantial dividend payments since the bank returned to profitability but the true cost of the bailout of AIB cannot be captured by a spreadsheet. The State was all but bankrupted by rescuing its banks and great hardship was imposed on its citizens by the terms of the bailout Ireland took from the International Monetary Fund, the European Central Bank and the European Commission.
To add insult to injury, the implication that the taxpayer is somehow now approaching break even ignores the simple truth that they are being repaid with their own money.
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AIB and Bank of Ireland – the other systemically important bank that was bailed out – have for some years charged some of the most expensive mortgage rates in Europe and offered some of the lowest interest rates on deposits. Their strong profits come from pocketing the difference between the two and ultimately falls on their customers. Only in recent months have Irish mortgage costs returned to around EU average levels.
The Irish banking market remains fundamentally uncompetitive and weighted heavily in favour of the two large banks’ shareholders rather than their customers. Note, in this regard, the 170 per cent increase in AIB’s profits to €2 billion. This had a certain logic from the perspective of the national finances when the banks were owned by the State. As the banks exit State ownership, it makes less and less sense.
The proposition that the senior management of two banks operating in this favourable environment should have their remuneration benchmarked against international peers is fundamentally flawed.
Yet the chairman of AIB Jim Pettigrew continues to lobby the Minister for Finance to lift the pay restrictions that were a condition of the rescue. He claims they pose a material risk to the retention of staff and by extension AIB’s worth to the taxpayer. In the absence of a return to banking competition in the Irish market the answer should be no.