Banks to reveal details of bonuses

DETAILS OF the bonus policy for senior executives at the six guaranteed banks and building societies will be submitted to a State bank remuneration oversight committee today.

The financial institutions must outline in the reports how their bonuses will reflect their attempts to reduce riskier lending and to improve the "long-term sustainability" of their institution over the two-year period of the guarantee.

The reports were being finalised yesterday as Anglo Irish Bank's share price fell sharply and the European Central Bank (ECB) made its biggest cut to interest rates on record.

The ECB lowered benchmark credit costs by 0.75 percentage points in an effort to stimulate activity as the bank forecast a gloomy year ahead in the recession-bound euro zone.

Anglo's shares tumbled for a second day after the bank reported on Wednesday a 37 per cent drop in profits for the year to September 30th and an almost ninefold increase in bad debts.

Anglo fell 28.4 per cent to 48c, valuing the bank at €364 million, as investors absorbed the pessimistic outlook from the bank for lower profits and higher bad debts over the coming three years.

The steep declines mean that Irish Life Permanent, which has a market value of €420 million, has replaced Anglo as the State's third-largest public bank.

Analysts have sharply reduced their future profit forecasts for Anglo and increased their estimates for loan losses following the results on Wednesday.

NCB Stockbrokers said it now expected the bank to be loss-making in its 2009 and 2010 financial years.

"The cuts principally reflect a higher bad-debt charge given that property development represents 23 per cent of the total loan book versus 15 per cent previously disclosed," said a research note.

The six covered Irish institutions will submit the reports on their remuneration plans for senior executives to the three-person Covered Institution Remuneration Oversight Committee (Ciroc) appointed on Wednesday.

The committee will in turn report to the Minister for Finance within three months on whether the institutions are complying with revised pay structures aligned to reduced risk-taking under the terms and conditions of the State's bank guarantee.

The six financial institutions must also show how they will reduce the charges they pay the State for the guarantee and this must also be reflected in the bonuses paid over the two years.

The Minister can, on the advice of Ciroc, direct an institution to amend its pay plans so that it is complying with the guarantee.

The members of Ciroc are former Accenture executive Vivienne Jupp; former comptroller and auditor general John Purcell; and former secretary general of public service management at the Department of Finance Eddie Sullivan.

Meanwhile, it emerged yesterday that British private equity firm Apax Partners is the fourth private equity group in talks with Bank of Ireland about buying into the bank.

Apax's approach to the bank is being led by Massimiliano Belingheri, the London-based partner of the firm's financial services team.

The firm is unlikely to invest with other private equity firms, but it is too early to say how its potential investment could materialise, Reuters reported, citing "a source close to the situation".