Myles O’Grady, chief executive of Bank of Ireland, flew to London late last week with a plan to rekindle investor interest in a stock that had stalled after soaring almost 90 per cent last year.
The results he would unveil on Monday were better than the market had expected. More importantly, the bank’s forecasts for the next three years – presented by O’Grady and his chief financial officer Mark Spain, that morning to City analysts – were poised to positively surprise even the stock’s most optimistic supporters.
The strategy update – months in the planning – set targets for group deposits to rise at a compound annual rate of 3 per cent over the period and for loans to grow 4 per cent a year to reach €90 billion by 2028. Assets under management across its Davy and New Ireland units would expand by 10 per cent a year to breach €75 billion under the plan – and were tipped by executives to hit €100 billion by 2030.
Net interest income is projected to nudge marginally higher to €3.4 billion this year, before gradually rising to €3.85 billion in 2028 – about €150 million above what analysts had been expecting – to deliver total income of €4.75 billion by then.
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But only hours before a weekend of intensive preparation was due to start on Saturday morning – split between the bank’s offices in Gresham Street, a few minutes’ walk from St Paul’s Cathedral, and the local base of UBS, one of its corporate brokers – reports emerged of explosions across Tehran.
As the bank’s top executives and a coterie of insiders continued their work over the weekend, they would receive updates – along with the rest of the world – of the killing of Iran’s supreme leader Ayatollah Ali Khamenei, dozens of senior officials and hundreds of civilians by joint US-Israeli strikes – and the pariah state’s retaliation against targets in other Gulf states.
Within the first few minutes of trading in Dublin on Monday, shares in Bank of Ireland had slumped by more than 9 per cent amid a wider sell-off across equities globally, as the price of oil, gas, gold and US borrowing costs soared.
While the bank’s shares rallied off their lows that day to close down 3.5 per cent, they continued to decline over the following days as investors around the world speculated on how long the war will last – and its economic impact.
European banking stocks have slumped as much as 8.6 per cent so far this week, making them among the worst hit sectors as the pan-European Stoxx 600 index dropped as much as 5.2 per cent.
Is there a risk that Bank of Ireland’s medium-term targets were out of date before they were even unveiled?
O’Grady told reporters that an extended military conflict in the Middle East could lead to a spike in oil prices, supply chain disruptions, and a “dampening of consumer confidence”.
Still, he says the Irish economy remains “resilient”, with it forecast to grow by an average of 3 per cent per annum over the next three years, that the Government’s finances were in a strong position, and the domestic outlook was also helped by €275 billion targeted for investment over the next decade under the National Development Plan.
The bank had also set aside a rainy-day provision – known in the industry as a post-model adjustment – of €40 million in its 2025 accounts to cover potential loan losses stemming from “geopolitical risks”. While the provisions decision predated the Middle East crisis that started last weekend, O’Grady and his team still had the US’s strikes on Iranian nuclear sites last June in the back of their minds as they considered known unknowns.
US president Donald Trump, speaking on Monday at the White House, said the attacks on Iran – dubbed Operation Epic Fury by his administration – could last four to five more weeks. But he also indicated it could go longer.
Too early
The International Monetary Fund (IMF) said this week that it was too early to judge the impact of developments in the Middle East on the global economy, saying it “will depend on the extent and duration of the conflict”.
The fund said it will provide a comprehensive assessment in new forecasts that are due to be released next month. It comes only two months after it raised its global gross domestic product (GDP) growth forecast to 3.3 per cent from 3 per cent, but warned activity could falter if trade barriers rise again and geopolitical conflicts intensify.
“Markets are reacting but the broader response still looks complacent. Investors appear to be assuming the conflict will remain limited and short-lived. Geopolitical shocks tied to global energy supply rarely unfold in such a tidy way,” says Nigel Green, chief executive of investment consultancy deVere Group in London, on Wednesday.
“The Middle East remains central to the global energy system. Should tensions involving Iran escalate, the economic implications will spread across energy markets, inflation and financial assets worldwide.”
On Wednesday, AIB followed its arch-rival by also issuing better-than-expected full year results, with underlying pretax profit of €2.24 billion beating consensus estimates by 4 per cent, and bank executives expressing confidence that its loan book will grow at an annual compound rate of 5 per cent over the next two years.
“What I’m wondering about right now is, how does this [conflict] end? I can’t see an off-ramp,” AIB chief executive Colin Hunt told The Irish Times. “So, we could be living with this uncertainty for a very considerable period of time.”
Hunt noted that central bankers face a difficult balancing act in setting monetary policy, as they weigh rising inflation driven by surging oil, gas, and other commodity prices against the drag on global growth caused by the conflict.
“Greater geopolitical tensions are going to have a dampening impact on economic activity. It’s going to put upward pressure on interest rates,” he says.
But Hunt says AIB has good reason for confidence in loan growth even with a drawn-out war in the Middle East – saying there has already been a “disconnect” for years between high Irish economic growth and low credit demand, with debt across households and small businesses at a fraction of where they stood before the crisis, relative to income.
“I don’t think it’s necessarily going to have a restraining impact in terms of credit demand, predominantly because the mortgage market is driven by housing output and I don’t think it’s going to have an impact on that,” he says, adding that the balance sheets of Irish households, businesses and the Government are “extraordinarily well positioned” following more than a decade and a half of deleveraging.
Others are more wary.
“While Irish banks have issued upbeat medium-term guidance, the turmoil in the Middle East has made investors understandably nervous about the implications for economic growth and funding costs,” says John Cronin, managing director of Seapoint Insights, an independent research consultancy focusing on financial services.
“A prolonged or escalating conflict could render outlook statements obsolete. However, guidance appears to be calibrated with a degree of caution with these and other risks in mind - and it is important to remember that the sector is extremely well capitalised.”
The heightened uncertainty couldn’t come at a worse time for PTSB, the smallest of the three domestic retail banks, which reported full-year results on Thursday and is currently up for sale.
PTSB’s net interest margins and cost reductions came in ahead of company forecasts and the bank’s fifth successive year of freeing up loan loss provisions – with last year’s release amounting to €39 million – surprising the market. Underlying pretax profit dipped 3 per cent to €175 million.
The Irish Times reported last week that the bank is targeting late March for second-round takeover offers, with Austrian banking group Bawag and New York investment firm Centerbridge Partners said to be among parties still circling the State-controlled bank.
Lone Star, the Texas-based private equity giant led by Irish passport holder John Grayken, also counts among those that committed resources to assessing a PTSB offer. However, it is not clear whether it remains in the mix. Goldman Sachs is running the sale process for PTSB.
PTSB chief executive Eamonn Crowley declined to comment on whether the Gulf crisis will make the sales process more challenging.
“The reality is, we’ve built a very resilient economy that has withstood Brexit, Covid, [the] Ukraine [war], and indeed tariffs in a quite successful manner,” Crowley told reporters at a press briefing. “We operate within that resilience that has been built up in the economy.”
“The bank is performing extremely well and is in a good position, both by way of funding, capital and indeed growth.”
Hunt also says that the Irish economy has remained surprisingly robust as it has dealt with an almost “annual global black-swan crisis every year going all the way back to Brexit in 2016”.
“If you think back to Brexit, people were saying it would be so bad for Ireland. But the opposite happened and Brexit was positive for the Irish economy,” he says. GDP has consistently come in well above the EU average over the past decade, fuelled by foreign direct investment (FDI) by multinationals as they expanded operations in the State.
“Even if you look at Liberation Day early last year,” he says, referring to Trump’s April 2nd announcement of plans to impose sweeping tariffs on the rest of the world, “there is no way we would have forecast at the time the export or FDI performance.”
The value of Irish exports jumped 16.4 per cent to a record €260.3 billion in 2025, according to Central Statistics Office (CSO) data, driven by companies front-loading exports to the US to get ahead of tariffs. IDA Ireland said that the Republic secured a record 323 FDI investments last year, up almost 40 per cent on 2024.
Capitalised and provisioned
Analysts note that even though Bank of Ireland plans to return €1.2 billion to shareholders over the coming months through dividends and share buybacks, AIB has earmarked €2.25 billion for investor distributions, and PTSB has just announced its first dividend since 2008 – albeit amounting to only €10 million – the sector remains well capitalised and provisioned for potential loan losses.
AIB’s Hunt, for example, highlighted that more than a quarter of his bank’s stock of €1.1 billion of provisions is made up of post-model adjustments (PMA) – above and beyond what its complex forecasting systems assess to be likely loan losses.
But the chief executive of seven years struck a note of caution.
“The danger is that the longer our resilience remains a striking feature of the domestic economic environment, the greater the risk that we become complacent,” he says. “And we don’t want to be complacent.”
Some sector observers, such as Seamus Murphy, who’s famous in Irish stockbroking circles for starting to call a bubble in banking stocks here in late 2006 when working as a trader with Davy, reckon that a drawn-out war could actually be good for bank earnings.
“We are now in a world where central banks are no longer manipulating market interest rates through quantitative easing. Looking at this logically, if economic growth weakens, governments’ fiscal deficits stand to widen. This would lead to higher long-term interest rates [as governments borrow more] and a mathematical certainty of an increase in household savings, both of which are very positive for bank earnings,” says Murphy, who set up Carraighill Capital, a low-key independent financial sector research provider, in 2013.
Murphy highlighted that the primary driver of Irish bank earnings in recent years has come from using customers’ current account cash – which costs them little or nothing by way of interest – and putting the money to work on deposit with the Central Bank and investing in long-term bonds.
“The banks are probably one of the best placed sectors to deal with the financial-world effects of an extended conflict in the Middle East. As counterintuitive as that may seem,” he says.
