Last week we learned that AIB, the toxic bank into which the State has already pumped €20.7bn, performed a quiet accounting trick in August so that it could keep its former brass in the six-figure style to which they had become accustomed.
The bank transferred €1.1bn of assets from its balance sheet, assets that, for all intents and purposes are public because of the bank’s nationalised status, to a private pension fund where they will be used to pay, among others, former CEO Eugene Sheehy approx €500,000 a year.
Fianna Fáíl finance spokesperson Michael McGrath, addressing last week’s Oireachtas Finance Committee, explained what had happened in layman’s terms.
“Essentially, money that is owed to the bank by its debtors, instead of being repaid to the bank, is being paid into a pension scheme which will now fund the payment of enormous pensions to Mr Sheehy and many others,” he said.
Faced with this extraordinary raiding of the bank’s meagre assets, the Government, instead of trying to do anything to thwart AIB, threw up its hands and said that it was powerless to do anything — an incredible admission from a Government which, effectively, owns the bank.
Finance Minister Michael Noonan was adamant that it was “not legally possible for the new Government to put [pensions] aside” and, when asked if bankers should forgo some of their inflated pension payments responded, matter-of-factly, it was “up to themselves”.
Really? Up to themselves? So, does Mr Noonan have any strong opinions on whether bank executives, who played a large part in bankrupting the country, should retire on half a million pensions paid for by the rest of us in perpetuity? Apparently not.
The bank’s own shareholders, who lost everything, including the shirts from their backs when the bank moved into State ownership, are a tad more exercised on the issue, prompting chairman David Hodgkinson, at the bank’s June AGM, to promise to write to those with so-called “super” pensioners and ask them to return some of their largesse to State coffers.
Well, that was nearly four months ago and guess what? Not a single letter has yet been sent — meaning that the bank’s gross incompetence is such that it has not been possible for it to post a few letters in 16 weeks. Meanwhile, the rest of us are supposed to give credence to the claim that the crack team, now running the bank, will be capable of restoring it to profitability by 2014.
Someone is clearly having a laugh and it isn’t the Irish taxpayers who will be asked to stump up a further €3.5bn in “adjustments” in the forthcoming bloodbath budget.
While Mr Hogksinson, Mr Duffy and Mr Noonan are busy wringing their hands and bleating that they’re unable to do anything, the truth is that there was no legal requirement for AIB to raid its balance sheet in order to provide for pensions that it can no longer afford to pay.
Consider what happens in other companies when a large black hole appears in their pension fund. A fairy godmother, in the shape of Mr Noonan, does not normally appear brandishing a wand and wads of bailout cash that can be used to plug the hole. No, pensions take a hit. Sometimes, a huge one.
Of course, this is what happens in the real work but not the Twilight Zone, impervious to cutbacks, that our cosseted Government members and senior bankers seem to inhabit.
One can see a similar level of unreality in the redundancy deal agreed for bank workers, which saw AIB offer four weeks pay per year of service.
Compare this deal with the 2.9 weeks, per year of service, which was demanded by Vita Cortex workers who spent five months staging a sit in at their Cork plant, or the statutory two-week entitlement that most workers, who lose their jobs, must content themselves with.
Banks, despite the fact that they are reliant for their very existence on the State, are still operating under the delusion that they can afford to lavish boom-era pay and perks on their pampered staff. Truly, the astronomical levels of cognitive dissonance currently on display are the stuff of psychologists’ wet dreams.
Faced with an extraordinary level of complacency from a blasé Mr Noonan on the issue, Mr McGrath at least tried to suggest some measures that the Government could take to ameliorate the situation.
Speaking on Morning Ireland on Monday, he said that the bank, cognisant of the gaping wound in its pension fund years ago, could have made a Section 50 Application to the Pensions Board that, if granted, would have entitled the scheme’s trustees to reduce members’ benefits.
That option is now no longer available because the deadline for applications expired in January 2011.
Mr McGrath also suggested that the Government could use existing legislation, the Financial Emergency Measures in the Public Interest (FEMPI) Act 2009, which has already been used to reduce public servants’ pay and pensions, to reduce bankers’ enormous awards.
The act, in a pertinent subsection, defines one kind of public service body as one “[established] under the Companies Acts … and financed wholly or partly by means of money provided, or loans made or guaranteed, by a minister of the Government or the issue of shares held by or on behalf of a minister of the Government” — which, on my reading, would seem to include a bank into which over €20bn of taxpayers’ money has been relentlessly shovelled.
I emailed the Department of Finance on Monday to try to get some clarity on this issue and asked if invoking the act was something that had been considered by the minister.
IN RESPONSE, the department said: “The existing FEMPI model which was justifiable in the context of securing direct Exchequer savings would not be appropriate as remuneration within the bank is not a direct cost to the exchequer.”
However, this contention seems open to debate considering the vast sums of State money propping up the bank and, unquestionably, being used to fund gold-plated pension arrangements.
Even if it ultimately transpires the act is ineffectual, and the contractual terms of bankers’ mammoth pensions are too ironclad to contest, the Government can still exert pressure on individuals to forgo a portion of their pay offs.
When former Royal Bank of Scotland boss Fred Goodwin, more commonly known as Fred the Shred, was awardedan annual pension of £703,000 a year when he took early retirement there was political apoplexy in the UK resulting in considerable pressure being applied which, ultimately, led to him forgoing a substantial portion of the gargantuan award.
There is a difference between being powerless to stop something and not being sufficiently bothered to do anything about it.
The Government’s kowtowing to bankers on their perks, historical or otherwise, suggests the latter least-resistance option is the one preferred by this cabinet.