National Asset Management Agency sealed the fate of AIB"s top executives

Eugene Sheehy, the AIB chief executive, earned respect from staff for the way he dealt with grievances festering from the numerous scandals that seemed to surface every few years at the country"s largest bank. Four years ago when he first took on Ireland"s top banking job, his confident, softly-spoken but apparently introverted manner won over staff. His acknowledgement of what AIB liked to refer to as its 'legacy issues' from the past - several disclosures of overcharging and the John Rusnak rogue trader saga - also won plaudits. But last week, Sheehy, along with chairman Dermot Gleeson and finance chief John O"Donnell, announced he will step down in the next few months. Sheehy has become the latest high-profile victim of the Irish banking meltdown, whose senior casualties to date include Bank of Ireland boss Brian Goggin, Irish Life & Permanent"s Denis Casey, and the two poster boys of the financial crisis, Sean FitzPatrick at Anglo Irish and Irish Nationwide"s Michael Fingleton. Sheehy and the top strategists at AIB had made the same multi-billion euro lending mistakes - and a few more - as the rest of the senior banking fraternity. By imprudently lending billions of euro to the same smallish group of property developers - a surprisingly compact group of possibly fewer than 50 speculators that any community hall could comfortably accommodate - the banks dropped the national economy and finances into the mire. It already seems a lifetime, but only six months ago Sheehy was in Government Buildings helping negotiate the State guarantee that underwrote the deposits and bond debt in the Dublin-based banks with €440bn of taxpayers" cash. The guarantee did not prove the solution that many in the banking industry had hoped it to be. Even late last September, AIB shares, though battered and sharply down from their all-time record of just under €24, were trading at over €8 each. This week, the shares were trading at just under a euro each, valuing the whole bank at a tiny €850 million. Institutional shareholders had had enough. Famously, legendary American investor Warren Buffett lost several tens of millions of euro last year betting on an AIB shares rebound, and other big pension fund investors at home lost many millions more. The Government, which is effectively the single largest shareholder left in AIB, also had seen enough. After it was forced last January to take over Anglo Irish, its avowed strategy has been to close the door on any further creeping nationalisation of AIB and Bank of Ireland. But this goal kept being undermined by AIB"s spectacular u-turns. Sheehy famously last autumn publicly set his face against accepting State bailout money, insisting the bank had enough capital to write off its big bad property debts. If only. Within weeks, the bank was accepting €3.5 billion from the taxpayer to stop its slide into insolvency. Then, just weeks ago, after insisting that the State cash was all the money it needed, AIB accepted what most independent analyses of its souring loan book had long guessed: it would need to tap even more. The Government"s examination of the books apparently unearthed the true picture. In one last spectacular policy switch, AIB said it may after all consider selling its large minority stake in M&T, the US east coast bank in which Buffett also has a stake, and dispose of its operations in Poland - thanks also to the slump in the Polish zloty against the euro, this is probably the least opportune time to sell AIB"s overseas banking assets. AIB"s dithering has presented another headache for the Government which should instead be focusing all its attention on policies to slow the destruction of jobs. But, in truth, the future of the AIB top brass had probably been sealed when the Government decided to set up the National Asset Management Agency (NAMA). Designed to cleanse the Dublin banks of their property loans, NAMA"s chief architect, Peter Bacon, advised that the Government agency would be best to keep the bankers at an arm"s length. It was clear that the presence of Sheehy and other top bankers would not be required to clear up the mess. Retail sales continue to drop The economists at the IMF in Washington, at the OECD in Paris and the ESRI in Dublin keep repeating the mantra: a financial crisis combined with a recession traditionally makes an economic slump even deeper. Unfortunately, the protracted process of refinancing the Dublin banks and the drop in retail sales and the rising live register figures appear to confirm the grim observation. Last week, figures showed that the jobless rate had risen to almost 11.5 per cent. Forecasters project it will peak late next year at 17 per cent. Then, retail sales figures also showed more sharp declines. Retail sales are a big component of consumer spending, which in turn accounts for a large slice of economic output and jobs. Retail sales need to stop falling before unemployment, which always lags an upturn, can start falling. According to the latest headline numbers, an astonishing 21 per cent fewer items were sold in Ireland"s shops from a year earlier. Sales of new cars have fallen off a cliff. Sales of new cars have slumped 50 per cent compared with last year. Ulster Bank economist Lynsey Clemenger forecasts that the rate of sales decline will slow as the year progresses. But she still sees a significant fall in consumer spending - and that will affect economic output and jobs.