Ireland Goes Bust

[Jan Klimkowski]

Have the Irish forgotten how to have a revolution?

Allied Irish Banks to pay €40m bonuses despite bailout

Stricken Allied Irish Banks says court case forces it to give out bonuses while Ireland's taxpayers suffer

Jill Treanor guardian.co.uk, Wednesday 8 December 2010 19.15 GMT

Stricken Allied Irish Banks is preparing to hand out €40m (£34m) of bonuses next week – despite being on the brink of receiving another emergency bailout from the Irish government.

As many as 2,400 bankers in its Dublin capital markets division are to receive the payments on 17 December under agreements struck with the bank in 2008.

The bank, 19% owned by Ireland's taxpayers but expected to reach 95% state-ownership, had originally been blocked from making the payments under one of the government's bailout programmes.

But legal action by a trader, John Foy, over a deferred €161,000 bonus awarded in 2008 has led the bank to conclude it will need to pay bonuses to many of the staff to whom they were awarded for that year. The bonuses are being handed out at a time when the government is instigating four years of tax rises and brutal cuts to benefits. The most austere budget in the country's history was passed this week.

European banking regulators are also meeting in London tomorrow to try to agree a new set of European-wide rules on how bonuses should be structured to avoid paying them when they suffer losses after taking on too much risk. The rules will require bonuses to be deferred over three years and clawed back if losses are made

Once the Committee of European Banking Supervisors makes its announcement, domestic regulators across Europe will have to race to implement the rules if they are to meet the January 1 deadline that Europe has demanded.

Given the Foy judgment last month, AIB says it has little option but to honour the 2008 bonus awards to staff "as per the contractual entitlements arising from the business's performance in 2008".

Ireland's central bank has told AIB it needs to raise a further €5.2bn by the end of February though this is likely to come from the €85bn International Monetary Fund-European Union rescue package rather than the private sector. This will take the bank almost entirely into state ownership.

Bank of Ireland is also racing to raise €2.1bn of fresh cash to avoid falling into majority state control. The government owns a 38% stake and the bank today tried to start generating better quality capital by offering to exchange its existing low quality securities for securities guaranteed by the government.

BoI will be hoping for takers of its so-called liability management exercise as the more money it can raise from private investors the lower the level of bailout funds it will need from the government.

Bankers are receiving much of the blame for forcing Ireland to take international assistance and implement the austerity budgetary measures. But while the public is expected to endure years of pain, the package of measures to save €6bn in the coming year were welcomed by the European commission. An EC spokesman described the budget as "tough and ambitious". and part of the programme needed to allow Ireland to be granted €85bn of rescue funds.

"It is an ambitious and indispensable tool for the redressment of the situation. There is the right balance between revenue and expenditure measures," the spokesman added.

http://www.guardian.co.uk/business/2010/...te-bailout