ALLIED IRISH Banks (AIB) and Bank of Ireland are resisting Government pressure to agree to wait up to two years before taking legal action against mortgage holders who miss repayments, as part of the €7 billion recapitalisation plan.
However, the Government appears willing to agree on a moratorium of “at least six months” on home foreclosures, similar to the agreement reached in the first bank recapitalisation plan announced last December.
Minister for Finance Brian Lenihan has said he is seeking a stay on home repossessions before agreeing to recapitalise AIB and Bank of Ireland with €7 billion.
The recapitalisation plan is expected to be unveiled tomorrow at the earliest, as the Cabinet meets today to discuss the plan for the State’s two biggest banks.
The Government is also seeking agreement with the banks on cutting executive pay and bonuses and increasing credit to businesses.
The banks have stressed during negotiations that lengthening the moratorium on legal action over arrears could encourage mortgage holders to miss repayments, thereby creating a larger subprime Irish mortgage market. They have argued that this will damage their funding as it would deter investors who buy bank bonds backed by the mortgages.
As the Government came under increasing pressure to cut pay to top bankers ahead of recapitalisation, Irish Life Permanent said its chairwoman Gillian Bowler had taken a 32 per cent pay cut for last year and that chief executive Denis Casey had waived a bonus of €620,000.
Ms Bowler was paid €288,000, instead of the €420,000 she was entitled to, while Mr Casey was paid €890,000, compared with €1.3 million he received in 2007, a reduction of about 32 per cent.
Mr Lenihan indicated on Sunday that the recapitalisation deal would not be finalised until the banks had committed to reductions in salaries and bonuses. However, speaking yesterday, Taoiseach Brian Cowen indicated that this would be dealt with in a report on bank salaries, which Mr Lenihan would receive shortly.
Fine Gael accused the Government of “bottling it” on reducing executive bank pay ahead of the recapitalisation deal being agreed.
Speaking at an Ecofin meeting of EU finance ministers in Brussels, Mr Lenihan said the Government already had powers to curb executive pay under the bank guarantee scheme last September which set up a remuneration committee to assess bankers’ pay.
Asked what level of pay was appropriate, Mr Lenihan said the Taoiseach indicated last week that he expected reductions of “at least 25 per cent in senior executive pay and directors remuneration”.
AIB and Bank of Ireland have told the Government that they are contractually obliged to pay bonuses to some executives under the terms of their employment.
Fine Gael leader Enda Kenny has made it clear that he would support the recapitalisation deal only on strict conditions, including guarantees that credit is made available to small businesses.
As part of the deal, AIB and Bank of Ireland have agreed to a code for business lending that will not increase the flow of credit to companies but will allow the Government to assess why certain companies are being refused loans.
Bank of Ireland is keen for an insurance scheme to be included in the recapitalisation deal where the Government would guarantee against losses on the bad debts, though the Government is only expected to say that it will assess the possibility of such a scheme.
There are concerns that any further guarantees could damage the Government’s credit rating and the banks’ funding under the existing State guarantee scheme.
Under the deal, the banks are expected to be able to reduce the stake the Government could take from 25 per cent to 15 per cent if they can, within a year, repay €1.5 billion of the €3.5 billion they will each receive in taxpayers’ money. This is to incentivise the banks to raise capital privately.