October 26, 2018 / 6:29 AM / 21 days ago

Allied Irish hit by CEO's Davy defection in pay cap exodus

DUBLIN (Reuters) - Allied Irish Banks (AIBG.I) chief executive Bernard Byrne is leaving for stockbroker Davy, joining an exodus which Ireland’s second-biggest bank has blamed on a government-imposed pay cap.

FILE PHOTO - Chief Executive Officer of Allied Irish Bank Bernard Byrne looks on at the Allied Irish Bank Annual General Meeting in Dublin, Ireland April 27, 2017. REUTERS/Clodagh Kilcoyne

AIB surprised investors on Friday with the news that Byrne would depart next year, leaving it looking for a new CEO as well as a chief financial officer after Mark Bourke said last month he was quitting.

The latest high profile exit revived the debate on a ban on bonuses and a 500,000 euro ($568,100) pay cap introduced during Ireland’s costly banking crisis a decade ago.

AIB chairman Richard Pym said last week this had turned the state-controlled bank, whose shares fell by as much as 10 percent before recovering to a 4.6 drop at 1315 GMT, into a “training ground” for competitors.

“It was a very grim day in my life when Bernard told me that he had an external opportunity which he wanted to pursue. The fact that it came so soon after the resignation of our CFO made it doubly difficult,” Pym said in a statement.

AIB raised the prospect over a year ago that it could potentially lose staff to international banks that are moving operations to Dublin as a result of Brexit, and do not fall under the Irish pay restrictions.

But it was Ireland’s largest stockbroker Davy, one of AIB’s two global coordinators when it completed Europe’s largest initial public offering of 2017, who has poached the CEO who led the bank’s return to the stock market.

Byrne, 50, will take over as head of capital markets and deputy chief executive from May 2019, Davy said in a statement.

Byrne received a salary of 500,000 euros and a 100,000 euro pension payment in 2017. Bourke, who is joining Lone Star-owned Portuguese lender Novo Banco at the beginning of next year, was paid a salary of 470,000 euros and a pension payment of 94,000.

FILE PHOTO: Chief Executive Officer of Allied Irish Bank Bernard Byrne looks on at the Allied Irish Bank Annual General Meeting in Dublin, Ireland, April 27, 2017. REUTERS/Clodagh Kilcoyne/File Photo

However, AIB rival Bank of Ireland (BIRG.I), which the state holds a 14 percent share in, was permitted to maintain a salary package at almost twice that level for its chief executive when it appointed a new boss last year.

EASY TO LEAVE

Byrne told the Irish Times last week that of AIB’s 200 most senior managers, a “mid-teens” percentage had left since its 3.4 billion euro ($3.9 billion) listing, a slightly higher attrition rate than normal that he said was accelerating.

Byrne also said last week that without pay, pension or share incentives “it’s very easy to leave” and that this was causing a bit of a drag in terms of investor interest in AIB.

At 3.99 euros, the bank’s shares are well below the 4.40 euro listing price achieved at the June 2017 IPO and more than 30 percent down on a high hit early in 2018.

“The resignation of both the CEO and CFO of AIB Group is likely to send shockwaves across Dublin this morning with growing concerns of instability,” Merrion Stockbrokers analyst Darren McKinley wrote in a note.

“This is a huge loss for the bank and already being felt by shareholders,” McKinley added, suggesting FBD Insurance (FBD.I) CEO and former senior Irish central bank offical Fiona Muldoon as the kind of replacement that might ease investor concerns.

Although AIB sought to introduce a deferred share plan for senior executives earlier this year, it was voted down by the government, which retains a 71 percent shareholding.

While Irish Finance Minister Paschal Donohoe acknowledged the restrictions could act as a barrier to the retention of some staff and launched a review, he said the policy was appropriate.

Any policy change is complicated by the fact that Donohoe is part of a minority government that has just begun talks over whether to renew a cooperation deal or go to the polls.

($1 = 0.8801 euros)

Reporting by Padraic Halpin; Editing by David Goodman/David Holmes/Alexander Smith

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