AIB chairman warns Noonan of pay-cap risks post-Brexit

AIB pressed to pay ‘progressive’ dividends to drive valuation

 

The chairman of AIB has warned the Minister for Finance that the bank may face staffing problems because it remains shackled by Government-imposed pay caps even as Ireland prepares for an influx of banking activities as a result of Brexit.

Minutes of a meeting between AIB chairman Richard Pym, chief executive officer Bernard Byrne, Minister for Finance Michael Noonan and senior Department of Finance staff on November 30th said the chairman highlighted the “arrival of UK banks (arising from Brexit) as a threat on the staffing front (as they are not constrained by remuneration)”.

Details of the meeting were released under the Freedom of Information Act to Sinn Féin’s finance spokesman Pearse Doherty TD. The Government expects that Brexit will help it reach its target of creating 10,000 new international financial services jobs by 2020.

Staffing challenges

Comments on the staffing challenges come as the State prepares to sell its 25 per cent stake in AIB as soon as May. Mr Noonan said last month he has no plans “to deviate” from the current policy of restricted pay at bailed-out banks, even though former AIB chief executive David Duffy told The Irish Times last August that would-be investors in the bank will want to see top management on a long-term incentive plan that aligns their interest with shareholders.

An exploratory attempt by former AIB chairman David Hodgkinson to set up an incentive plan for senior executives was publicly shot down by Mr Noonan in early 2014. AIB received a €20.8 billion taxpayer bailout during the financial crisis.

Meanwhile, speaking points prepared for Mr Noonan’s November meeting with AIB said the payment of a dividend and “communication to the market of a progressive dividend policy is a priority for the State, given its importance in maximising proceeds as part of any sale process”.

“The market is clearly differentiating between dividend payers and dividend ‘promisers’, so it’s a big driver of valuation,” according to the notes. None of Ireland’s bailed-out banks have made a payment to shareholders since 2008.

Return capital

Mr Byrne highlighted as “challenging” AIB’s interaction with the European Central Bank’s supervisory arm regarding plans to return capital to the State. Analysts at AIB’s corporate broker, Goodbody Stockbrokers, estimate the lender could make a €285 million dividend payment to the State after it publishes full-year results early next month.

No comment was available from AIB on its meeting with the Government.

The value of the State’s 99.8 per cent equity stake in AIB was revised down to €11.3 billion at the end of December from €12.2 billion a year earlier, according to a valuation exercise, published on Monday, which was carried out for the Ireland Strategic Investment Fund by accounting firm EY. This reflected a decline in European banking stocks during the period, though they have rallied somewhat so far this year.

Mr Noonan and his officials held a separate meeting Bank of Ireland’s chairman Archie Kane and chief executive of the retail division in Ireland, Liam McLaughlin. The lender emphasised that it plans to “adopt a sustainable dividend policy, rather than a progressive policy” when it returns to dividends.

The State continues to hold an almost 14 per cent stake in Bank of Ireland following the financial crisis.