AIB boss would not have done Goodbody deal if bonuses had been off the table

AIB's chief executive, Colin Hunt, told the Oireachtas finance committee on Wednesday that he would not have gone ahead with a €138 million deal earlier this year to buy Goodbody Stockbrokers without the firm being allowed by the Government to continue to pay bonuses.

Mr Hunt said that variable pay is a feature of stockbroking and wealth management businesses.

“I would not have wanted to acquire the business in the absence of us having the ability to continue with the pre-existing arrangements within Goodbody,” he said. “Because if I wasn’t able to continue with them, I would have run the risk of the business being significantly damaged by an outflow of talent and an outflow of staff members.”

The transaction, agreed in March and which remains subject to Central Bank approval, protects bonuses for staff of the securities firm, even as pay restrictions and a bonus ban remains in place across bailed-out Irish banks. Goodbody has about 300 employees. The deal will also see 30 AIB corporate finance and wealth management staff transfer to Goodbody Stockbrokers by the end of next year and benefit from the brokerage's variable pay policy.

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AIB previously owned Goodbody but sold the business a decade ago as it offloaded non-core assets in the wake of a €20.8 billion taxpayer bailout.

Bank of Ireland chief executive Francesca McDonagh signalled in March that she may look at the Goodbody template in the event of her group acquiring Davy, which is currently on the market in the wake of a bond trade scandal.

Branch review

Meanwhile, Mr Hunt said that following the amalgamation this year of five AIB branches in Dublin, Cork and Galway that were in close proximity to each other, the bank plans to review “a small number of locations in mainly urban areas where overlaps occur”.

He also said that the bank is keeping its “physical locations” in Northern Ireland “under review, but we don’t have any announcements at this point”. AIB cut its number of branches in the North in half in 2017, to 15. The CEO said that he sees the bank more as a “challenger bank” than a “pillar bank” in an overbanked market in the six counties.

AIB will accommodate staff members who want to work from home three days a week in a post-Covid world, according to Mr Hunt.

Asked by committee members about the high levels of capital that Irish banks must hold as a result of the perceived riskiness of their mortgage books in the wake of the financial crisis, Mr Hunt said he expects the so-called risk-weighting of home loans to reduce “over time”, even if the crash-era losses will have some bearing on banks’ calculation models “in perpetuity”.

Irish banks must hold three times as much expensive capital against mortgages as the average European lender, according to Banking & Payments Federation Ireland. The average annual interest rate for new mortgages stood at 2.8 per cent in April in the Republic, compared to 1.26 per cent across the wider euro area.

“I can assure that as those risk weights come down – as the benefits of years and years of prudent, sustainable, appropriate lending are felt – that will have a compressing impact on the spread between the average European mortgage rate and the average Irish mortgage rate,” said Mr Hunt.