Allied Irish Banks Plc, which needed a 20.7 billion-euro ($26 billion) state bailout, plans to cut executives’ and senior managers’ pay, freeze staff salaries and reduce pension costs.
The Dublin-based bank will shave executive committee members’ salaries and pay-related allowances by 15 percent starting in August, with other executives facing a 10 percent cut and senior managers a 7.5 percent reduction, Chief Executive Officer David Duffy said in a staff e-mail today. The e-mail, obtained by Bloomberg News, was confirmed by Niamh Hennessy, a bank spokeswoman.
“AIB’s cost-to-income ratio in 2011 was 96.2 percent and, as you will all be aware, this level of cost is unsustainable in the current economic environment,” wrote Duffy, who became CEO in December, with a 500,000-euro-a-year cap on his salary. “It is imperative that the cost base of the bank is sufficiently aligned with the overall operating performance to attract external investors.”
The 99.8 percent state-owned lender, Ireland’s second largest by assets, announced plans in March to eliminate 2,500 jobs, marking the biggest cutbacks in Irish banking history. Ireland has injected 20.7 billion euros to bail out the bank and smaller lender EBS, which it was ordered by the government to take over in July, amid bad-loan losses after the collapse of the real estate market in 2008.
“With regard to all other staff, we are engaged in discussions with unions on a proposal for a potential general pay freeze until end-2014,” Duffy said, adding that he intends to move all employees onto defined-contribution pension plans, where retirement benefits are linked to the performance of funds, from defined-benefit and hybrid plans, where payments are linked to final pay levels.
Allied Irish has lost 28.1 billion euros on soured loans over four years, according to data compiled by Bloomberg News. The figures include loan-impairment charges and losses on divestments such as the sale of real estate assets to the National Asset Management Agency, Ireland’s so-called bad bank.
Duffy said on March 30, as the lender reported its full-year net loss narrowed to 2.29 billion euros from 10.2 billion euros in 2011, that he hopes to attract investors back to the bank next year to start repaying some of its rescue costs.
The Finance Ministry said in November Duffy’s appointment was subject to a state-imposed 500,000-euro-a-year salary cap, no benefit-in-kind payments and employer pension contributions set at 15 percent of salary into a defined-benefit plan.