Chambers refuses to scrap AIB pay cap as State stake falls below 30%

The new Minister for Finance, Jack Chambers, has refused to budge on executive pay restrictions at AIB after he sold a further batch of shares in the lender on Wednesday evening in a deal that reduced the State’s holding below the key psychological 30 per cent level.

The Minister raised almost €593 million from the sale of a 5 per cent stake in AIB, marking the first significant decision he has taken since he was formally appointed on Wednesday.

The trade reduces the State’s holding to 25.5 per cent. It also brings the State’s total cash recovery to date on the bank’s €20.8 billion crisis-era bailout to over €16 billion, according to AIB.

Its remaining 25.5 per cent holding is currently worth €3.16 billion, which would leave taxpayers €1.64 billion under water on a cash in, cash out basis.

“Removing the salary cap isn’t something I’m considering presently and it will be maintained over the coming period,” Mr Chambers told reporters in Dublin. “I have no intention to remove the salary cap over the coming period.”

Asked about the timeline for future share sales he said: “We’ve said that there will be future share sale in AIB and we set out the context of that. We want to reduce the State’s stake in AIB and we believe the banking system is better placed in the market,” he added.

Former minister for finance Paschal Donohoe said in 2022 that the Government would lift the pay cap once it fell below an unspecified “appropriate level”, after he removed a similar restriction at Bank of Ireland on the sale of the State’s final shares in that lender.

Department of Finance officials had suggested in internal documents that falling below 50 per cent could be the point at which AIB should be free to decide on salaries of executives. However, Mr Donohoe’s successor, Michael McGrath, declined to do so last summer when the holding fell below that threshold.

AIB has been lobbying Government for some time to remove pay restrictions, saying it is a “material risk” to keeping senior staff, especially since its main rival, Bank of Ireland, is free to set its own executive pay.

The department spokesman declined to say if falling below the 25 per cent level – expected later this year – will provide an opportunity to revisit the restrictions.

The Government has been selling down its stake since early 2022 on three fronts: dribbling small amounts of shares into the market; placing larger 5 per cent blocks on occasion; and participating in stock buy-backs by the bank. The holding stood at 71 per cent in January 2022 before the sell-down programme began.

Mr Chambers said he will look at further opportunities for share sales following a 90-day period where he has agreed to remain out of the market.

“We want to continue to normalise the relationship between the State and AIB as it remains this Government’s belief that banking in the main is an activity that should be provided by the private sector,” he said.

AIB chief executive Colin Hunt welcomed the latest share placing, priced at €4.90 a piece, equating to a 2.7 per cent discount to their closing price on Wednesday.

“This well-supported transaction is another important milestone in the normalisation of the share register and will yield a further €593 million for the Irish taxpayer, to whom AIB owes an immense debt of gratitude for its support during the financial crisis,” he said.

Shares in AIB have risen by 32 per cent over the past 12 months. Investor sentiment towards Irish banks – whose earnings are much more sensitive to interest rates than your typical European bank – has been underpinned this year as expectations of the pace at which the European Central Bank (ECB) will cut official borrowing costs have been reined in.

At the start of the year, financial markets had factored in 1.5 percentage points of rate reductions. While the ECB moved earlier this month to lower official rates by a quarter of a point – bringing its deposit rate down to 3.75 per cent – economists estimate that only two more cuts are in store for the remainder of the year. At the start of the year, the market had been pricing in six quarter-point rate reductions.

The €16 billion recovered by the State from AIB to date includes proceeds from an initial public offering in 2017, redemption of bailout bonds, interest, guarantee fees and dividends.