The furore over AIB’s purported “bailout” of the bank’s pension fund for past and present staff to protect the retirement nest eggs of former senior executives is a classic example of how political grandstanding can overlook exactly what is going on and what may in fact be in the public interest.

Banker-bashing has become a political sport and there is no doubt many bankers deserve to be bashed over how they wrecked their institutions and left the Irish public with a bill of €64 billion.

But the debate over the merits of what AIB did with its pension fund has been skewed by the view that the reason for the move was just to support the pensions of former bankers of a taxpayer-saved bank.

One of the Government’s strategies to ease the massive debt burden on the public is to get the State out of banking. To achieve this banks must attract investors and to achieve that they must make profits.

Banks do this by reducing the cost of funding, increasing the cost of lending and reducing overheads. AIB’s transfer of loans with a face value of €1.1 billion to the bank’s pension fund was part of the third leg of that strategy: reducing overheads.

A reduction of 2,500 staff is estimated to save more than €200 million a year.

Given that many senior staff at AIB were lifers and started working in the bank in their teens or twenties, the age profile of most of those leaving would be over 50.

Paying redundancy for these years of service would have cost a fortune for a bank already costing the State €18.4 billion (or €20.7 billion if EBS is included). Offering early retirement was cheaper.

About 1,900 of the 2,500 staff will leave before the end of the year and most of those are going under early retirement.

In fact, there are so many departures this side of Christmas that it is boom time for Horse Show House, the pub beside the gates of AIB Bankcentre in Ballsbridge, with all the retirement parties going on.

The large number of early retirements meant that the solvency of the AIB pension fund would have come under severe strain and fallen below the legal minimum funding standard.

Reducing the pension deficit (€1.4 billion last June) was therefore crucial, even though AIB was not legally obliged to do so, if the bank was to be able to reduce staff by the targeted 2,500 and to lower costs.

On August 17th last it was reported on these pages that AIB transferred loans with a face value of €1.1 billion at a discount to the pension fund. The loans had been in AIB’s “non-core” bucket to be shed under the troika’s “deleveraging” strategy to “right-size” AIB, wean it off European Central Bank funding and ensure it could survive independently.

The trustees, which include AIB’s former chief credit officer Joe O’Connor, agreed to the asset transfer to maintain the solvency of the fund (given the large number of new retirees drawing on it) and to ensure no current or future AIB pensioners was better or worse off by the move.

In fact, the trustees accepted a pretty conservative valuation of the loans; AIB’s half-year report said the first tranche of €700 million loans was transferred at a value of €400 million in August, leaving the bank with a loss of €300 million, which AIB said was in line with expected losses.

There was little or no response, certainly in political circles, to news of the pension fund transfer. But it became a political football last week at the Oireachtas finance committee when AIB chief executive David Duffy was asked and confirmed this was the same pension fund that was paying out large retirement payments to the likes of former chief executive Eugene Sheehy. (The irony of politicians questioning large, guaranteed pensions appeared to be lost on the day.)

It is right to question why former executives of bailed-out banks should be paid large pension sums after retiring from the mess they created. But this is a separate matter to what AIB did with its pension fund. The bank did itself few favours at the committee hearing by not spelling out the difference more clearly.

It also didn’t win over any opposition with its slow progress in sending out letters to former executives asking them to volunteer reductions in their pensions.

Following the committee grilling, AIB said yesterday it has now sent out the letters, which it had told shareholders in June it would do by the end of the year.

Oireachtas committees often play to the crowd, particularly on hot political topics such as banking, and AIB should have been better prepared. For Duffy’s first committee appearance, it was a baptism of fire.