Debate over merits of AIB pension 'bailout' skewed

On August 17th last it was reported on these pages that AIB transferred loans with a face value of €1.1 billion at a discount to the pension fund. The loans had been in AIB’s “non-core” bucket to be shed under the troika’s “deleveraging” strategy to “right-size” AIB, wean it off European Central Bank funding and ensure it could survive independently.

The trustees, which include AIB’s former chief credit officer Joe O’Connor, agreed to the asset transfer to maintain the solvency of the fund (given the large number of new retirees drawing on it) and to ensure no current or future AIB pensioners was better or worse off by the move.

In fact, the trustees accepted a pretty conservative valuation of the loans; AIB’s half-year report said the first tranche of €700 million loans was transferred at a value of €400 million in August, leaving the bank with a loss of €300 million, which AIB said was in line with expected losses.

There was little or no response, certainly in political circles, to news of the pension fund transfer. But it became a political football last week at the Oireachtas finance committee when AIB chief executive David Duffy was asked and confirmed this was the same pension fund that was paying out large retirement payments to the likes of former chief executive Eugene Sheehy. (The irony of politicians questioning large, guaranteed pensions appeared to be lost on the day.)

It is right to question why former executives of bailed-out banks should be paid large pension sums after retiring from the mess they created. But this is a separate matter to what AIB did with its pension fund. The bank did itself few favours at the committee hearing by not spelling out the difference more clearly.

It also didn’t win over any opposition with its slow progress in sending out letters to former executives asking them to volunteer reductions in their pensions.

Following the committee grilling, AIB said yesterday it has now sent out the letters, which it had told shareholders in June it would do by the end of the year.

Oireachtas committees often play to the crowd, particularly on hot political topics such as banking, and AIB should have been better prepared. For Duffy’s first committee appearance, it was a baptism of fire.