They may not come with their torches and pitchforks, but AIB shareholders are bound to be in foul humour at the bank's annual general meeting on Wednesday. After being told for months that things were not as bad as they soon turned out to be, they have every right to be angry. They will no doubt be anxious to see that, after a miserable year, things are moving back in the right direction at Bankcentre.

The board has probably appeased the worst of its shareholders' wrath by offering up its top three members for sacrifice two weeks ago. Chief executive Eugene Sheehy, group finance director John O'Donnell and chairman Dermot Gleeson all announced their pending retirements as it became clear major institutional investors – who hold the bulk of shares in the bank – were preparing to move against them ahead of this week's AGM.

Unable to sustain market credibility after six months of false confidence about capital strength and asset quality, AIB's leadership was at the mercy of the big fund managers – and the fund managers had run out of forbearance.

So the board avoided a public bloodletting in favour of a quiet exit. But Gleeson, Sheehy and O'Donnell still have to face the indignity of standing for re-election just so they can retire later in the year. That's because, as part of the government's €3.5bn recapitalisation of the bank, the entire board has to resign and submit to a new vote to allow the government's appointments to be elected.

There is a tacit agreement with shareholders to return them to the board. Institutional sources – which had withheld their proxies pending the removal of the leadership – have indicated to the Sunday Tribune that they will approve the government plan and allow the three directors to continue in their present roles until their retirement dates.

Of course, this technical arrangement guarantees something of a showdown on Wednesday, as Gleeson will still have to chair the meeting.

His tune will no doubt have changed since last year, when he reassured investors, uneasy after Royal Bank of Scotland's recent stumble into a desperate £12bn rights issue, that AIB's capital position was solid and the bank had "no requirement for recourse to shareholders for supplementary capital".

Indeed, AIB has not tapped its shareholders for a single cent in the past 12 months, but its capital position turned out to be far from solid. Since Gleeson's pledge, the bank has been forced to accept plans to inject first €2bn and now €3.5bn into it reserves. The banks says it will not be enough to protect it from massive writedowns on its development loans and other deteriorating assets.

Just a week before the top three directors announced their curtain call, AIB admitted it would need to raise another €1.5bn from asset disposals – including prize assets BZBWK in Poland and M&T in the US. Those are far worse than a rights issue.

What a turnaround. In February, 2008 AIB sank €216m into a 49.99% stake in Bulgaria's BACB bank and was on the lookout for "sufficient opportunities" to buy bigger in eastern Europe. At the time, the bank said that such small, digestible investment would have no material impact on capital ratios, but it is hard to imagine the bank refusing a couple hundred million in the safe today.

It's mildly embarrassing to have to walk back on expansion plans, but Gleeson's mistake last year on asset quality is what really looks perplexing from this remove.

After a giving shareholders a lecture on how the turmoil in financial markets was caused solely by American subprime mortgages, Gleeson went on to say capital, asset quality and funding were all robust. Incredibly, the bank was predicting a provision charge of just 20 basis points (bps).

Later it transpired the figure was 137bps, or €1.8bn in writedowns. Judging from the expected haircuts for entry into the mooted National Asset Management Agency (NAMA), the trend is downwards for this year. In fact, it was the results of stress tests by government appointed auditors PricewaterhouseCoopers that prompted the admission that the bank would need €1.5bn in capital above what finance minister Brian Lenihan had already committed to save it.

So the "diversity and resilience" and "carefully chosen spread of businesses" Gleeson talked about at 2008's AGM turned out to be irrelevant. The bank's assets were clearly overconcentrated in terms of geography (Ireland) and class (development loans). No amount of hand-waving about toxic mortgages in Las Vegas can hide the fact that AIB bet big and bet wrong on Ireland's unsustainable property bubble. That, and not any global crisis, is why there had to be a clear-out at the top.

How the normally pugnacious Gleeson explains this, on behalf of his diminished board, to justifiably angry shareholders on Wednesday will say a lot about whether AIB has reformed its culture of denial into one of responsibility.