The Government moved on Tuesday to lift the State’s remaining €500,000 executive pay cap at bailed-out banks after selling its remaining shares in AIB.
AIB and PTSB, which is 57 per cent taxpayer owned, remained subject to a pay limit after restrictions were lifted at Bank of Ireland in late 2022, following the sale of the State’s last shares in that lender.
Minister for Finance Paschal Donohoe said that removing the salary restriction “ensures a level playing field between Bank of Ireland and AIB”, in which the State no longer holds shares, as they vie to attract and retain senior employees.
“Removing the salary cap for PTSB at this juncture is to ensure that it is not put at a competitive disadvantage,” he said.
However, Mr Donohoe ruled out removing a prohibitive 89 per cent supertax that applies to bonuses in excess of €20,000 across the three surviving domestic banks.
The Minister confirmed on Tuesday morning he had sold the State’s remaining 2.06 per cent stake in AIB for €305.3 million, bringing the total recovered to date from the bank to €19.8 billion.
It means that AIB is set to fall about €700 million short of repaying its €20.8 billion taxpayer rescue bill, including the expected €300 million the Government is on track to receive from selling back stock warrants it continues to hold in the bank.
“This is an important milestone in delivering on the Government’s policy of returning the banking sector to private ownership,” Mr Donohoe said of the share sale.
The Minister noted that in late 2021, when he went about selling down the State’s then 71 per cent remaining stake in AIB, that he said banking should be provided by the private sector, as it involves taking credit risk.
[ Department of Finance to wind down special bank shareholdings unitOpens in new window ]
“It follows that taxpayer funds, which were used to rescue the Irish banks, should be recovered and used for more productive purposes,” he said, adding that proceeds from AIB share sales in recent times have been earmarked for investment in energy, water and transport infrastructure needed to boost the delivery of housing.
The total AIB bailout recovery, which also includes proceeds from an initial public offering (IPO) of AIB shares in 2017, redemption of bailout bonds, interest, guarantee fees and dividends received from the bank, is on track to be about €700 million shy of repaying the State on a cash-in, cash-out basis.
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However, Mr Donohoe said that taxpayers are currently about €600 million above water on their €29.4 billion rescue of AIB, Bank of Ireland and PTSB. That’s because it recovered €2 billion more from Bank of Ireland than the lender’s €4.8 billion rescue bill as the other two are on track to come up short.
“AIB profoundly regrets that the institution had to be rescued by the State almost two decades ago and owes an immense debt of gratitude to Irish taxpayers for the support provided during that challenging time,” the bank’s chief executive, Colin Hunt, said.
“Since then, our focus has been on rebuilding trust, repaying the State and continuing to support our customers, communities and the wider economy.”
AIB’s shares have soared 31.5 per cent so far this year to more than €7. Analysts expect loan book growth, which resumed in 2021 after 13 years of contraction, to partially offset the effect of falling interest rates on earnings this year.
[ AIB ‘performing ahead of expectations’ amid global uncertainty - CEOOpens in new window ]
Net profit at AIB rose 14 per cent last year to a record €2.35 billion, even as official interest rates fell at pace between June and December.
“With our market-leading customer franchise, resilient revenues and a strong capital position, we remain confident in the strong fundamentals of our business and our ability to play a positive role in the Irish economy, helping to build a more sustainable future for our customers while delivering sustainable returns for our shareholders,” said Mr Hunt.
The stock warrants the State holds in AIB, issued at the time of the bank’s initial public offering (IPO) eight years ago this month, gave the Government the right to buy back up to a 9.99 per cent stake in the bank if it doubled in value in the space of a decade from its €4.40 IPO price.
The warrants were designed to avoid the State being embarrassed in the event of a massive surge in AIB’s share price.
The strike price of the warrants have been adjusted since they were issued, the factor in the effect of share buy-backs. AIB estimated in March that it may cost about €250 million to buy back the warrants, based off a pricing model known as Black Scholes.
Analysts estimate it could now cost about €300 million, given AIB’s share price’s advance since then.
