Bonus row shows Bank of Ireland is no better than rest

BUSINESS OPINION:Were Bank of Ireland staff who oversaw a €1.9 billion loss in 2009 really irreplaceable?

THE REVELATION that Bank of Ireland paid €66.4 million bonuses since receiving a State guarantee and €7 billion in capital support from hard-pressed taxpayers shouldn’t shock anyone.

A report from Arthur Cox was issued by the Department of Finance on Thursday confirming the bank provided wrong information in response to a parliamentary question from Fianna Fáil backbencher Chris Andrews regarding payments and bonuses at the banks since the introduction of the Government guarantee in September 2008.

Not only did the bank provide wrong information to Brian Lenihan so that he in turn misled the Dáil, the department investigation also found the information provided in 2009, in advance of a recapitalisation of the bank which cost the taxpayer €3.5 billion, “was incomplete and misleading”.

The bank’s defence that it thought the request for information on bonuses only related to “performance-related payments” does not wash. AIB was able to provide the correct information at the time.

There was intense media coverage and public debate after AIB admitted last December it had paid €58.7 million in bonuses in 2009 and 2010. Do Bank of Ireland chief executive Richie Boucher and his management team live in that much of a vacuum that they still thought the request was purely related to “performance-related bonuses” and not all payments over and above basic salary?

The report pulls no punches in that regard and finds that Bank of Ireland used “a restrictive and uncommon interpretation of what constituted a performance bonus”.

Church leaders were vilified when the Murphy report revealed they had relied on a “mental reservation” concept which allowed them to be economic with the truth without sinning.

Bank of Ireland’s defence falls into the same category of an organisation that engages in providing misleading information without being guilty of lying.

A long statement issued by Bank of Ireland in response to the bonuses report shows it feels it is the wronged party in the whole fiasco. It states the bank has “reservations” about some of the conclusions of the report and has communicated them to the department.

One sentence is particularly telling: “In addition there are certain other non salary payments which the bank does not classify as ‘bonuses’ but which the bank has disclosed in the interests of transparency.”

Given the events of the last 2½ years it is farcical that the bank thinks it can still dictate what information it provides to its largest shareholder and main source of capital – the Irish State.

It is also telling that in the statement the bank apologises to the Minister of Finance and his officials over the “quality” of information provided. While that in itself sounds like a half-hearted apology, what about the Irish people who have lost their jobs or seen their businesses fail because of the implosion of the banks?

There is an argument that many of these bonuses are paid to middle- and lower-ranking staff who rely on them as if they were part of their salary. But if that is the case why not simply regularise the situation? Convert a percentage of the bonus to salary and make the argument to the bank’s largest shareholder that it needs to be done.

Another common justification is that the bonuses have to be paid to retain key executives. Bank of Ireland paid €11.359 million in “retention payments” between September 2008 and December 2010. Presumably these were to irreplaceable staff who oversaw a €1.9 billion loss in 2009?

Bank of Ireland offered to pay €2 million to the State “to recognise the difficulties caused by the way the bank handled this matter”. It should also be borne in mind that the cash-strapped exchequer had to bear the cost of an investigation by Arthur Cox solicitors to extract the correct information.

The outgoing Government simply accepted this and senior sources are now saying a line has been drawn under the matter. This just further underlines how out of touch with the mood of the nation they are and how they continue to defer to the bankers at every turn.

In media appearances last October Brian Lenihan twice talked about restoring AIB and the Irish banking sector to its former “greatness”. But from the current vantage point it is hard to see what is great about Irish banks.

Steven Seelig, the only overseas board member in Nama and a former IMF official, was damning in his assessment of them in an interview in this paper last week.

“Either they had to know or they weren’t competent to be bankers. It is one or the other,” he said, in relation to their failure to foresee the billions in loan losses coming down the line.

The reason we shouldn’t be surprised by the bonus payments farce is that these ignorant or incompetent bankers are still largely running the show.

Bank of Ireland seemed to be emerging from the banking crisis in better shape than its rivals, largely because management exercised some sense of caution at the height of the boom.

But this revelation about Ireland’s “least worst bank” suggests it is not that different a beast to the rest of Irish banking.

Our economy needs a functioning banking sector if it is to grow again and create jobs. But the drip feeds of scandals and increased losses leave serious questions to be answered about the capabilities of our current crop of bankers.