Payments could not be tolerated in light of €13.5bn bill for taxpayer

BACKGROUND: Following a challenge to a deferred bonus by a capital markets trader, it emerged that AIB was paying €40m in bonuses…

BACKGROUND:Following a challenge to a deferred bonus by a capital markets trader, it emerged that AIB was paying €40m in bonuses – an amount which understandably sparked outrage

IN EARLY 2009, several months after the Government guaranteed the liabilities of AIB and four other institutions, the bank told capital markets trader John Foy that he had earned a bonus of €161,000 the previous year.

Mr Foy earned a basic salary of €75,190, but at the time the bonuses he earned formed a much higher proportion of his overall pay.

AIB was due to pay his 2008 bonus in February 2009, but by the time the deadline came around, the bank told the trader and his colleagues that it was deferring all bonuses.

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A Government committee had recommended that the guaranteed banks pay no bonuses, and there was growing controversy over the practice, which was seen as too generous, and as part of the culture that created the crisis in the first place.

The bank persisted with its position that it was deferring bonuses, but it did make such payments to overseas capital markets staff and employees in the US, who were entitled to the money under their contracts, after those employees sued the institution.

Last summer, about 90 staff in its profitable capital markets division took legal action against AIB demanding to have bonuses paid. Their claim was based on the argument that they were entitled to the bonuses under their employment contracts, which meant that the bank was legally obliged to pay them.

While Mr Foy’s claim was singled out, it was in fact a test case for the others, who were due payments totalling €10 million. Dublin law firm McDowell Purcell represented the workers involved.

In November, Mr Foy’s case went before the Master of the High Court, Edmund Honohan. The trader’s lawyers told the court that the bonus was part of his pay packet and the decision to withhold it was causing hardship to himself and his family.

The court ruled in Mr Foy’s favour and AIB did not oppose the judgment. The court gave him liberty to get a judgment for his €161,000 bonus against the bank.

The following week, AIB confirmed that it would pay the near €10 million bonuses due to Mr Foy and his colleagues in accordance with the terms of their contracts. The bank added at that point that it had no plans to pay any bonuses for 2009.

AIB said yesterday that it did not defend Mr Foy’s action as its lawyers advised that it did not have a bona fide defence to make against his claim, and therefore should not go ahead and swear an affidavit claiming that it did.

Following Mr Foy’s success in getting a judgment, it emerged that AIB was paying staff ranging from juniors through to executives a total of €40 million in bonuses.

In light of the fact that the taxpayer is pumping more than €13.5 billion into the bank to bail it out of the crisis brought on by its reckless lending to the property market, and against the background of last week’s hair-shirt Budget, this sparked outrage.

Executive chairman David Hodgkinson reacted last week by writing to staff warning that the deferred bonuses reflected the past and not the way the bank intends to conduct itself in the future.

Minister for Finance Brian Lenihan finally stepped in yesterday and wrote to Mr Hodgkinson saying that the bank would not get any further State funding if it went ahead and paid the bonuses. “As AIB could not be in a position to pay without State support, past present and to come, I believe that this condition is reasonable and proportionate,” he said.

Mr Lenihan added that nothing in the letter could prevent the bank from meeting its obligations under an existing court order. In short, this means that the bank will have to pay Mr Foy his bonus, but the State would take its lifeline away if it were to pay any of the others.

Barry O'Halloran

Barry O'Halloran

Barry O’Halloran covers energy, construction, insolvency, and gaming and betting, among other areas