THE DEPARTMENT of Finance told AIB last July that if it proceeded to pay 2008 bonuses to staff in its capital markets division, it should not make any reference to or infer that Minister for Finance Brian Lenihan approved them.
Ann Nolan, assistant secretary at the department at the time, told AIB’s head of human resources John Conway in a letter last July the Minister had “no role” in approving the bonus payments at the bank.
“In the event that AIB decide to proceed with the awards, it should be noted that no reference to the Minister for Finance having approved the payments should be inferred or made,” said Ms Nolan, who is in charge of banking policy at the department.
The department told the bank in the letter – seen by The Irish Times– it had noted the bank received legal advice to say it was legally obliged to pay the bonuses and that it was a matter for AIB whether to pay them.
The bank subsequently chose not to pay €40 million in 2008 bonuses to 2,400 staff until a trader in the capital markets division, John Foy, won a test case in the High Court last November.
The bank had no comment on why it chose to allow the legal actions taken by capital markets staff to proceed when it had told the department it was legally obliged to make the payments.
A source close to AIB said it wanted the contractually binding nature of the bonuses to be tested in court before paying them, even though it filed no affidavit in the Foy case outlining its position.
When AIB said it was legally obliged to pay the bonuses following the Foy case, Mr Lenihan intervened to stop them.
He informed the AIB board last month that further State funding would depend on the non-payment of the bonuses. AIB backed down and only Mr Foy’s bonus was paid.
A spokesman for the department said yesterday that Mr Lenihan did not object to the bonuses being paid last July as the bank was still trying to raise funding privately at that time and that he had no legal entitlement to object.
AIB’s subsequent financial difficulties – when it emerged that the bank required additional amounts of Government cash – created “a supervening event” allowing the Minister to intervene, he said.
The spokesman said that AIB staff were still legally entitled to the bonuses but the bank’s difficulties superseded these legal rights.
The Minister has said AIB could not have survived without State support. Following the bonus controversy last month, the Government had to pump a further €3.7 billion into AIB, pushing the State’s stake in the bank to 92.8 per cent.
AIB requires a further €4.7 billion by the end of next month, which the bank has said is “likely” to come from the Government.
Mr Lenihan yesterday included an amendment to the Finance Bill introducing a tax of 90 per cent on bonuses of more than €20,000 at Government-guaranteed banks.