AIB says its board has decided not to pay the controversial €40m in bonuses to almost 2,500 staff.
The decision follows an intervention from the Minister for Finance Brian Lenihan, who wrote to AIB's board threatening withdrawal of further State funding should the €40m be paid.
The Minister's letter said the payment of financial support needed by the bank from the State would be conditional on the non-payment of bonuses, 'no matter when they may have been earned'.
A statement from the Minister said legislation to implement this proposal would be discussed by Government tomorrow.
In a statement, AIB executive chairman David Hodgkinson said the bank was 'relieved' to be in a position not to pay the bonuses.
Mr Lenihan also said he had 'total confidence' in AIB's executive chairman and its board. '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,' he added.
AIB said the board had previously received legal advice that it was obliged to pay the bonuses, which related to 2008. But it said the Minister's letter included a decision by him to legislate on the issue, which overtook the bank's obligation. The letter to AIB said the bank could not have survived until now without State support.
Cowen 'understands bonus concerns'
Earlier, Taoiseach Brian Cowen said he understood the serious concerns people had about the planned payment of €40m in bonuses, particularly because of the amount of support the taxpayers have given the banking system.
The bank - which to date has received €3.5 billion from the Government - was to pay the bonuses as a result of a High Court ruling earlier this year.
Earlier, AIB said it was misleading to say the bank did not defend proceedings brought against it by former currency trader with the bank, John Foy, to receive his 2008 bonus.
Yesterday the Sunday Business Post's lead story was headlined: 'AIB put up no defence in bonus case' which triggered the payment of €40m in bonuses to almost 2,500 staff.
The newspaper said that instead of the High Court's deciding the bank was legally obliged to pay the 2008 bonuses, it appears AIB made the decision to pay the bonuses because it declined to file a defence.
But in a statement this morning, the bank said that interpretation was misleading. AIB said that to be allowed by the court to enter a defence, the bank would have had to swear an affidavit that it had a bona fide defence and was not simply seeking to postpone judgement.
