AIB halts €40m bonus pay after Lenihan threat

AIB has decided not to pay the controversial €40 million in bonuses due to staff following intervention by the Government.

The bank got off the hook after Finance Minister Brian Lenihan told the troubled institution not to pay the bonuses if it wanted further funds from the state.

After discussing the issue with the Attorney General, Mr Lenihan wrote to AIB yesterday stressing the degree to which it was dependent on taxpayers’ money and saying the public’s interest needed to be protected.

“Accordingly, I wish to inform you that the provision of further state funding to AIB will be conditional, inter alia (among other things), on the non-payment of any bonuses, no matter when they may have been earned,” Mr Lenihan wrote.

“As AIB could not be in a position to pay without state support, past, present and to come, I believe that this condition is reasonable and proportionate.”

Mr Lenihan said legislation would be discussed at today’s cabinet meeting to give effect to his request.

It was not entirely clear last night, however, on what basis this legislation will operate, given the difficulties in applying law retrospectively and the fact that the bonuses were awarded for work performed prior to 2008.

Mr Lenihan said he would not discuss the details of the legislation ahead of the cabinet meeting, and admitted that “no course of action is totally free of legal risk”.

However, he said his letter of request to AIB was regarded as a “supervening event” — effectively meaning it overrode the bank’s initial legal advice to pay the bonuses.

He said the board of AIB was at all times obliged to act in the best interests of the bank, and that meant following the legal advice it had received.

However, now that the board had been told funding depended on non-payment of the bonuses, it could revise its decision in the best interests of the bank, he added.

In a statement last night, the board indicated it was acting precisely on those grounds.

“Previously, the board had received strong legal advice that it was obligated to pay these bonuses. However, the letter from the minister conveys a decision by him to legislate, which overtakes this obligation,” it said.

The Government will be hoping this ends the saga following days of unrelenting pressure.

AIB initially decided to pay the monies, following trader John Foy’s successful legal action against the bank, which resulted in it having to pay him a deferred bonus of €161,000. Because this was a court ruling, Mr Foy will still receive his bonus.