Anyone who was surprised last week when it emerged that the board of AIB had tried to get finance minister Brian Lenihan to break his own rules on bank executive pay has not been paying attention to the way that AIB has conducted itself throughout the financial crisis. The bank's entire approach to dealing with its mounting problems over the last two years has been to brazen it out.
The perfect example of this attitude was on display at the bank's May EGM to approve the government's emergency capital injection of €3.5bn when an angry shareholder rose up and pelted chief executive Eugene Sheehy and chairman Dermot Gleeson with eggs in protest at their stewardship of the institution. Sheehy remained impassive, but the more pugnacious Gleeson sprang right back up to the podium, made a perfunctory wipe of his soiled suit, and faced down the audience of investors.
Despite his forced resignation in July, the spirit of Gleeson lives on at AIB. The board's recent attempt to manoeuvre Lenihan into accepting an extraordinary €633,000 pay packet for unsuccessful chief-executive candidate Colm Doherty was just the latest in a series of cocky displays stretching back to the farcical August 2008 decision to increase dividend payments as the banking sector faced collapse.
This time the bank's board, smarting from Lenihan's rejection of Doherty for the top job, wiped the egg off its lapels and submitted a request last Tuesday for the approval of a salary €133,000 more than the maximum €500,000 allowed for chief executives.
What made the pay gambit especially egregious was that the proposed salary was for Doherty's appointment as managing director – a newly conjured position designed to insert the former capital markets' boss between executive chairman Dan O'Connor and the rest of the top officers, thus saving face both at the bank and the Department of Finance.
In effect, Doherty would be chief executive in everything but name, allowing the bank to get on with the business of hiring chief financial and risk officers, not to mention proceeding with a less pressurised search for Sheehy's ultimate replacement. After all, to comply with the Combined Code of Corporate Practice, O'Connor will have to eventually surrender his executive responsibilities to focus on good governance and oversight.
But the step up in prestige for Doherty required a step down in pay, as he had been earning €633,000 in his old job.
The political impossibility of Lenihan's approval of the pay request does not appear to have given the board pause. After all, AIB had a certain moral claim to bend the rules: rivals Bank of Ireland were allowed to promote insider Richie Boucher to the chief executive post with a minimum of fuss – a privilege denied to AIB. Yet in reality, AIB's position has always been more precarious and its relationship with Lenihan less cooperative – otherwise it would not have taken half a year to come up with half a solution to the leadership problem at the bank.
Yet at every juncture of this crisis AIB has fought for survival precisely by denying reality. The truth is AIB is on its knees, but the board nonetheless appears desperate to assert its supremacy despite the bank's utter reliance on the government for support.
It is clear from the trading statement AIB released to the stock market last Wednesday that without Nama the bank would go under. More than a quarter of its loans are in trouble – or "criticised", in the bank's parlance. The balance sheet will be taking a €5.3bn bad-debt charge at the end of the year, €1bn more than expected just three months ago. The tidal wave of provisions are so enormous it will easily wipe away the €2bn in expected operating profit the bank is obviously so proud of.
But even that astonishing bad-debt number is dwarfed by the impaired loans – those overdue by 90 days or more – the bank is now prepared to acknowledge. In the Nama portfolio alone, the €24bn of property, development and associated loans which will transfer to the state agency over the next half year or so – €10.5bn is impaired. That means 42% of the loans the taxpayer is taking off the bank's hands are non-performing.
However, in spite of the objective facts in the trading statement – asset quality is still deteriorating, funding costs remain high, margins are down – the update conveys a defiant insistence that the board is in charge of its own destiny, even as the European Commission contemplates whether to force the bank to sell its international divisions or Lenihan holds open the possibility of nationalisation.
The overview in the trading update made sure to foreground the success of the capital markets division, as if to remind Lenihan of Doherty's prowess and qualifications as a banker.
The sentiment also found its way into bank's statement on Doherty's appointment as managing director, in which the bank could not resist a reminder that "his contractual remuneration package will... be considerably lower than applied in the past to the chief executive officer role or, indeed, to Mr Doherty's pervious role in AIB".
The bank also was at pains to point out "the importance of international diversification" and its "multi-national sources of income" in a transparent plea for the retention of its profitable Polish and US arms, which may have to be sacrificed under state aid rules.
After such an inglorious week, the bank does not have many more chips to play. Two possible future points of friction are the separation of the chief executive and chairman roles, both occupied by Dan O'Connor, and the appointment of external candidates to the chief financial and risk jobs. Both the bank and the minister have stated they regard the executive chair role as temporary, meaning a fully-fledged chief executive has to be found.
Without vigilance on Lenihan's part, Doherty could easily slip into the job once the storm has blown over. The other two external appointments could also easily play out along similar lines to the chief executive fiasco.
But the own goal AIB scored with its stubbornness over executive pay last week could put the bank at a disadvantage the next time it goes into battle over a substantive, rather than trivial, issue.
There is the very real possibility this bank will have to go back to the government for more capital or funding support. When it does, it might not find the minister so accommodating.