Why Irish Bankers May Be Losing Battle to Get Bonuses Back

(Bloomberg) -- For high-flying Irish bankers hoping to get bonuses again, the mood music is increasingly grim.

During the financial crisis, the government capped pay and banned bonuses at bailed-out lenders. Almost a decade on, amid concerns that the industry was facing an exodus of talent, Finance Minister Paschal Donohoe commissioned a report into the restrictions, which cover about 23,000 bankers.

Since then, Donohoe has sent mixed signals. He’s highlighted the risk of key staff abandoning an important sector. On the other hand, he’s referenced the “anger and outrage” still simmering among the public. Insiders see a move to completely scrap the bonus ban before the next election as unlikely; one described the issue as politically toxic.

No final decision has been made, and one potential compromise could see some element of variable pay restored to low-ranking staff as opposed to executives.

But the banks haven’t always helped their own case. First, with memories of the crash still fresh, the industry got itself entangled in another scandal: overcharging mortgage customers. Ireland’s lenders, including Allied Irish Banks Plc and Bank of Ireland Plc, have paid out about 650 million euros ($734 million) in compensation.

‘Training Ground’

Second, there’s a sense that bankers could have chosen their language more wisely, given the state is still seeking to recover the 64 billion euros sunk into the banks during the crisis. AIB Chairman Richard Pym’s suggestion that the state control of the banking system, which resulted from the financial crisis, mean Ireland isn’t a fully open economy irked some in government.

AIB Chief Executive Officer Bernard Byrne and Chief Financial Officer Mark Bourke have have quit the bank, and their departure prompted a group of investors to complain that bonus restrictions are a “huge concern.”

“Sometimes, it feels in AIB that we’re the training ground for the rest of the competition,” Pym said after Donohoe blocked a previous effort to bring back bonuses.

In an answer to a parliamentary question last week, Donohoe acknowledged the issue.

“In the senior ranks of the banks, the substantial disparity in pay levels versus other Irish listed companies or peer banks in Europe is stark and introduces an obvious retention risk, particularly in AIB and Bank of Ireland,” Donohoe said.

The finance minister is now considering the report he commissioned. It’s set to recommend easing the curbs, according to people familiar with the matter. This month, the nation’s central bank voiced a similar opinion, saying firms moving to Dublin fleeing Brexit make it harder for local banks to retain staff.

Yet, Donohoe is operating in a wider political context. He’s trying to keep public spending in check as health sector staff consider striking for extra pay. Moreover, he’s part of a minority government, propped up by the biggest opposition party, Fianna Fail -- and they’re not playing ball.

“Until the mortgage scandal is fully dealt with, I believe it would be entirely inappropriate to loosen the restrictions on bankers’ pay and bonuses,” said Michael McGrath, finance spokesman for Fianna Fail.

Even if Donohoe loosens the rules, it’s not a bonanza for the highest earners -- unless the tax system is tweaked as well. Bank bonuses of more than 20,000 euros currently face a tax of 89%.

In Europe, bonuses remain a source of contention.

Banker bonuses are still being paid mostly in cash instead of securities, which “foster a short term view” and separates them from a bank’s sustainability, ECB Banking Supervision head Andrea Enria said at conference in Dublin on Thursday.

--With assistance from Peter Flanagan.

To contact the reporter on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Keith Campbell, Marion Dakers

©2019 Bloomberg L.P.