AIB finds itself basking in odd company

It's not every day that AIB finds itself mentioned side by side with Goldman Sachs. And it's not a comparison that would automatically spring to mind.

The Irish bank is still recovering from the financial crash of 2008. Advisers for the Government are in the middle of a drip-feed sale process that will still see it holding a stake of just under 60 per cent by midyear.

Up to this week the State had recouped only €10.8 billion of the €20.8 billion it invested to rescue the bank in a move that wiped out 99 per cent of investors’ interest.

Goldman Sachs, on the other hand, has just reported its best ever annual profit – $21.2 billion (€18.75 billion) – which is more than double what it made the previous year. And, as Peter Jenkins noted in the Financial Times, it is 15 times larger than the Irish bank. But, Jenkins adds, they do share one common concern – pay.

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In AIB’s case, in common with other rescued lenders in the Irish market, it is severely constrained by what it can pay to attract or retain talent. It is, it argues, hobbled by an overall salary cap of €500,000 and a de facto ban on bonuses and other performance-related incentives.

Goldman Sachs, which recently appointed former Arthur Cox managing partner and chairman Eugene McCague to a part-time advisory role in Ireland, has pay issues, too, but in its case the concern is the amount it is having to set aside to keep its people. Even in a year when Wall Street struggled to contain pay, Goldman was an outlier with its pay bill ballooning by 33 per cent.

Of greater concern to investors is that Goldman’s surging pay bill is not attributable to flexible bonuses. Base salaries jumped from 30 per cent for junior ranks to reportedly far more for those further up the line – and those outgoings will subsequently be locked into the cost base.

Apart from bolstering the Irish lender’s argument on pay, AIB will take pleasure in the FT noting that its share price gain last year of 32 per cent left Goldman’s 20 per cent advance in the shade. With a position even more dominant in a faster-growing economy than Goldman’s in theirs, Jenkins asks aloud which of this admittedly odd couple might be the better banking bet this year.