Bank of Ireland's chief dilemma
THE writing is on the wall for Bank of Ireland and its embattled chief executive Richie Boucher. The last Irish bank to sidestep Government control will struggle to avoid effective nationalisation and raise the remaining €1.9 billion of a €4.2 billion bill from shareholders by a deadline at the end of this month. Those shareholders have been burnt not once but twice after agreeing to buy new shares last year following the collapse in the bank’s share price since 2008.
This leaves the bank facing a hard sell to encourage investors to put good money after bad for a second time. The fact that the share price stands at 10 cent – the same level at which the bank is selling new shares this month – says it all; the offer is not viewed as a viable investment.This is a worrying state of affairs for the Republic. Bank of Ireland is one of the country’s two “pillar” banks.
Whether the bank, which is already 36 per cent State- owned, avoids ceding majority control to the Minister for Finance Michael Noonan is largely moot when it comes to Mr Boucher’s future as chief executive.
His role as a bank director and track record during the boom years will be scrutinised under the Central Bank’s fitness and probity tests of directors who have been on bank boards since before the 2008 financial crash.
This planned vetting of directors was overtaken by the Minister’s vow to remove all bank directors who were in place before the bank guarantee in September 2008. Mr Noonan has said he thinks these directors should go not because he holds them personally culpable but because the crisis “happened on their watch”.
The planned “renewal” of the boards and management was again referred to by the bailout “troika” last week as an objective to be met by the Government, putting further pressure on Mr Boucher. By the end of the year, following the retirement of finance director John O’Donovan, Mr Boucher will be the only remaining executive director at the bank who had a boardroom seat before the 2008 crisis.
Mr Boucher was instrumental in growing Bank of Ireland’s development loans after his appointment as head of retail banking in 2005. This lending has been responsible for much of the bank’s €10 billion losses on bad loans that has the bank on Government life support.
At a time when transparency in banking is vital, the bank has played games with the Government. It was rightly pilloried for saying late last year that no bonuses were paid when it had in fact paid out €66 million.
Despite two State bailouts and two cash-calls on shareholders, the bank will still struggle to encourage international investors to lend to it. The bank hardly passed last Friday’s EU stress tests with flying colours, emerging with a post-test capital ratio that still fell below some of Europe’s biggest banks.
Mr Boucher has tried his best to fix Ireland’s least worst bank and he deserves some credit for managing to leave enough shares in private hands to maintain a listing on the main stock exchange – the only Irish bank to do so. But if he wishes to depart with some dignity his final act should be succession planning to install fresh blood to lead the recovery of this so-called pillar bank.