AIB has decided not to pay some €40 million in backdated bonuses to staff following a letter from Minister for Finance Brian Lenihan.

The bank’s board met earlier this evening to consider Mr Lenihan’s letter which warned the bank that further State support would be conditional on the non-payment of bonuses awarded, no matter when they had been earned.

The minister’s letter to the board stated that without the State support which had been provided in a variety of forms, AIB could not have survived until now.

The bank had previously claimed it was under legal obligation to pay bonuses due to certain employees.

But in a statement this evening, the bank’s board said AIB had considered the minister's letter and decided not to pay the bonus payments.

The executive chairman of AIB, Mr David Hodgkinson, said “The board of AIB very much welcomes the actions of the minister and is relieved to be in a position not to pay these bonuses.

“We are determined to position the bank to play a full role in the recovery and development of the Irish economy. In doing so, we are committed to treating our customers, staff, the taxpayer and the public in a fair and transparent manner,” he added.

Welcoming the decision, Mr Lenihan reiterated his “total confidence” in the executive chairman and the board of the bank.

“I appreciate that AIB was not in a position to put up a sworn defence in the High Court proceedings and that the executive chairman and the board have acted with complete propriety in this matter."

However, Fine Gael's deputy Leader James Reilly accused the minister of belatedly and reluctantly caving in to public outrage and Opposition pressure.



“Brian Lenihan has finally responded to public outrage and Opposition pressure on the obscenity of AIB bonuses,” he said.



“When the Government took a majority stake in AIB two years ago, it should have insisted that bonuses or increases in salaries could only be sanctioned by the minister," he said.

Taoiseach Brian Cowen said earlier the Government was looking at all options available to prevent the payment the bonuses to AIB staff.

The High Court last month ordered that AIB would have to pay backdated bonuses to some staff after the bank failed to enter a defence against a case taken by trader John Foy.

However, Opposition politicians yesterday said the Government should stop the payments and should sack the board of AIB.

Mr Cowen said the Government was “looking at everything” to see if it could prevent the payments.

“We’ll have a Cabinet meeting tomorrow and see, as a result of inquiries further over the weekend, whether anything further can be done over and above what we’ve clearly pointed out, which is, from a personal point of view, from a Government point of view, we’d rather these weren’t taken up,” he told reporters at a meeting of the British-Irish Council in Douglas in the Isle of Man.

Minister for Energy Eamon Ryan said the payments were not “appropriate” under the current circumstances. “We’ll have to look at whatever different ways we can to see if that can be changed,” he said.

Minister for Health Mary Harney said it was a “pity” AIB had not contested the case taken by Mr Foy to force it to pay €40 million in backdated bonuses.

Speaking in Dundalk, Ms Harney said it would have been better if the case were fought but she understood “different legal advice" had been given to the banks.

“But clearly the bank’s ability pay has to be very much in doubt given the state of the bank and the huge amount of capital put in by the exchequer, on behalf of the taxpayer,” she said.

“At a time when the exchequer is putting huge amounts of money into AIB, people need to be mindful of their responsibilities - that applies to management, those on the board and the government.”

Ms Harney said she hoped the Government would win the Dáil vote on the EU-IMF bailout on Wednesday.

“Member of the government will support it and I believe we have the support of independents. It is unfortunate that the opposition parties are not going to give their support,” she said.

“This arrangement is essential for the functioning of this country, last year we had to borrow €19 billion more than we raised in taxes to run the country, to pay doctors, nurses and teachers. We don’t have the capacity to raise that money, we do need outside help," she said.

"It was regrettable that we had to get that help but we’ve got it now and we have a programme for the next four years and I believe there’s a responsibility on everyone elected to the Dáil to take that responsibility seriously and to support that vote when it comes before the Dáil on Wednesday."

Last week, Mr Lenihan announced that 90 per cent of bonuses paid to bankers would be recouped by the exchequer in tax after it emerged AIB staff would share tens of millions in bonuses for 2008.

Mr Hodgkinson had said the payments reflected AIB’s past and was “not the way we intend to conduct ourselves in future”.

Mr Lenihan said in a response to a parliamentary question that some 2,869 AIB employees were paid €58.65 million in deferred bonuses this year and last year.

Some €35.5 million was paid this year following legal action and a further €3.7 million was paid to staff in AIB Capital Markets in respect of deferred bonuses relating to work in 2006 and 2007. Some 62 executives shared €11.11 million, or an average of €179,000 each, for 2009, while 674 managers shared €30 million or an average of €44,000 each.