BoI chief focuses on growth as bank turns corner

Interview: Francesca McDonagh has ramped up customer service in her first months

Francesca McDonagh looks visibly relieved after a day of presenting her grand vision on the future of Bank of Ireland to a room of suits in London.

Eight-and-a-half months into the job as chief executive of Ireland’s largest bank by assets, McDonagh made a simple pitch on Wednesday to about 80 analysts and fund managers attending her eagerly-anticipated investor day at the bank’s UK headquarters in the heart of the City of London, some five minutes’ walk from St Paul’s Cathedral. The bank plans to increase the size of its loan book by 20 per cent by the end of 2021, driven by a resurgent Irish economy; shave €200 million of costs; and double the profitability of its uninspiring UK unit.

"This is a new chapter not just for Ireland but for Bank of Ireland, [moving] from a period of restructuring, then stabilisation and now growth," McDonagh (43) tells The Irish Times in an interview that takes place in a glass-lined office at the top of the building that she has temporarily commandeered from her UK chief, Des Crowley. "I'm absolutely excited by the opportunity."

It does, however, come at a cost. McDonagh also revealed on Wednesday that she has upped the budget for an ongoing IT project, and further restructuring – including job cuts – by €500 million to €1.4 billion.


Last October, the former HSBC career banker became Bank of Ireland's third outsider and first woman to take charge of the bank in its 235-year history, succeeding crisis-era leader Richie Boucher as he retired after 8½ years at the helm. She inherited the only bailed-out Irish bank to avoid nationalisation during the crisis, and the only lender that has repaid its State aid (returning €6 billion to date on a €4.8 billion rescue).

Boucher also bequeathed a group on the cusp of paying its first shareholder dividend in a decade. It fell to McDonagh to announce the shareholder payout in February along with the bank’s 2017 results.

However, the new boss was also left with a €900 million IT overhaul programme to which she has had to commit more money to get the job done properly; a 265-strong branch network manned by demoralised staff for disgruntled customers; and the hospital pass of dealing with the bank’s role in an industry-wide scandal where mortgage-holders were either wrongly denied their right to cheap loans that track the European Central Bank’s main rate, or put on the wrong rate.

Key stakeholders

“The normal orientation that I would have expected coming into Bank of Ireland, that I’d planned for, was slightly disrupted by tracker,” says McDonagh, who arrived as public and political uproar over the crisis crescendoed late last year. “But it actually, in some ways, was very good, because I really got to understand an organisation under stress and I got to meet all the key stakeholders.”

The new chief executive moved within six weeks of her arrival to acknowledge that up to an additional 6,000 customers had been impacted by the tracker debacle, mainly stemming from the bank relying on an overly legalistic interpretation of contracts, rather than doing the right thing. That brought its total number of affected customers to 14,500, including 5,100 dealt with previously in 2010.

McDonagh set aside an additional €170 million to deal with the problem, on top of the €25 million that Boucher had put in the kitty to resolve the issue, and vowed to take personal responsibility for restoring trust in the bank.

“As of now, we’ve made an offer of redress and compensation to 99 per cent of every single customer impacted,” said McDonagh. The bank has been unable to track down – even with the help of tracing agents – the final 1 per cent, many of whom are likely to have left the State during the downturn.

McDonagh herself is a descendant of Irish emigrants. Her paternal grandfather hailed from the village of Carraroe in Co Galway and her father’s mother came from Laois. (McDonagh had thought she was from Dublin, until she went about applying for an Irish passport under the so-called granny rule.)

McDonagh went to Coloma Convent Girls’ School, a Catholic state comprehensive school, in Croydon in south London before studying philosophy, politics and economics at Oxford University – a degree that’s seen as a passport to power and influence in Britain. Politicians such as David Cameron, Jeremy Hunt, Philip Hammond and Ed Miliband as well as BBC journalists Nick Robinson and Evan Davis, and ITV’s Robert Peston are among Oxford PPE graduates.

“My background was anything but privileged,” McDonagh says. “Neither of my parents went to university and I didn’t dream that I’d necessarily end up in Oxford. Sorry to disappoint you, but I have no best mates who are now successful high-profile politicians.”

McDonagh joined banking giant HSBC on a graduate trainee programme in 1997, rising quickly up the ranks and spending most of her time abroad, including stints in Hong Kong, Oman, Mexico and Panama, before returning home in 2014 to head up retail banking and wealth management for the UK and Europe for the bank.

The public face of a project to have gender parity at senior management level of HSBC's new UK head office in Birmingham by 2020, McDonagh was widely tipped internally to head up the group's recently ring-fenced UK retail bank. That job ultimately went to Ian Stuart, a veteran banker HSBC lured from Barclays four years ago.

McDonagh insists she wasn’t looking to move when she got a call “from someone that I trusted” – outside of Bank of Ireland – who alerted her to the opportunity in Dublin.

“When you’re a senior banker – often when you’re a female, because there are not that many females at that level of banking – you get a lot of phone calls and you just don’t take them. But that was a phone call that I took. The Irish link gave me cause to pause and think that this could be very interesting.”

Having been approved for a mortgage facility of almost €1 million last year, according to the bank's 2017 annual report, McDonagh, who is the top-paid executive in a bailed-out Irish bank on a salary of about €950,000, recently bought a home in Dalkey in south Co Dublin. Her husband commutes from Dublin to London, where he has a business.

McDonagh says she hadn’t anticipated the level of recognition and “feedback” that top bankers get on the street in Ireland. “I think that level of engagement and awareness has surprised me. You are part of a community that has a vested interest, because of the role that taxpayers had in supporting banks. In the UK, I don’t think that necessarily happens to even the very well-known CEOs of some of the larger banks. Maybe it’s a British reserve.”

Or maybe it’s the fact that the cost of rescuing the Irish financial system threatened the Republic’s solvency and tipped it into an international bailout.

Central to Bank of Ireland’s new strategy, unveiled at its first capital markets day in 11 years, is that the loan book will grow by about €14 billion over the next four years to €90 billion, having contracted by 45 per cent since the onset of the crisis.

Long-standing investors that stuck with the bank through the downturn have heard that number before. It was outlined in 2011 as a target when the bank attracted a €1.1 billion rescue investment from a group of North American investors led by Wilbur Ross, now US commerce secretary, and Prem Watsa’s Fairfax Financial Holdings. They have since sold their shares, crystallising a €1 billion gain between them.

Inflection point

The €90 billion objective was quietly dropped years ago, as households and businesses continued to repay debt at a faster pace than they took on new borrowings. However, McDonagh seems to be confident that an “inflection point” has been reached this year, with net loans having risen by €100 million to €76.2 million in the first quarter, driven by mortgage growth in Britain and Ireland.

The group also set out an ambitious target for its life and pensions business to grow from a €1.4 billion annual premium equivalent to €2 billion in the lifetime of the strategic plan.

Having carried out a thorough review of the group’s underperforming UK division – the only major overseas business of an Irish bank to avoid being sold off amid a dash for cash during the crisis – McDonagh affirmed her commitment to that market on Wednesday.

The UK, where Bank of Ireland has joint ventures with the Post Office, the AA and works mortgage brokers, accounts for about €2 out of every €5 the bank has out on loan. The problem is that the business had largely been run during the downturn as an important source of deposits, which were priced at higher rates than the market average. Efforts, more recently, have been on cutting deposits rates there.

McDonagh, who knows the UK market like no other head of an Irish bank, has set Crowley a target of doubling the division’s “low single-digit” percentage return on tangible equity (RoTE) – a key gauge of banking profitability – by investing in business areas that are generating good returns and “repositioning” those where there is less certainty.

The bank has signalled that it may shift its focus in the UK from mainstream mortgage lending towards first-time buyers and “under-serviced growth markets” such as later-in-life and self-employed borrowers.

It also revealed that it is carrying out a strategic review of its €700 million UK credit cards book, which may result in this line of business being exited.

With Crowley (58), who joined the bank 30 years ago, approaching his natural retirement age, most of that responsibility will pass on to his successor. The speculation is that McDonagh is on the hunt for an external candidate to head the UK division when Crowley leaves, after other top executives around his age – Michael Torpey and Peter Morris – signalled in March their plans to retire as part of a wider executive team shake-up.

‘Leap of faith’

McDonagh has brought in fellow HSBC alumnus Oliver Wall as her chief of staff, former National Australia Bank executive Steve Collier to spearhead the IT transformation programme, and a new chief marketing officer, Henry Dummer, from Eir. But convincing senior outside candidates "to take a leap of faith" has been a challenge, she says, as pay restrictions and an effective ban on banker bonuses at bailed-out Irish lenders remains in place.

With Minister for Finance Paschal Donohoe preparing to appoint consultants to review remuneration in the sector after shooting down a plan to reintroduce executive bonuses at the bank’s annual general meeting in April, McDonagh says: “We would encourage normalisation of the sector, but it is a matter for the Government.”

In the meantime, McDonagh has wasted no time putting her own stamp on the bank, deciding in April to close 27 back-office centres, affecting 420 employees. While more than 200 of these are expected to leave the bank, many of the remainder will find themselves scattered across its branch network, where the new chief has – against the trend in the industry – decided to increase front-line roles in response to a wave of complaints from staff and customers about service levels.

McDonagh is also seeking to take out about 15 per cent of middle management positions, believed to involve as many as 250 jobs, as she moves to cut the layers between herself and lowest-ranking staff to seven from 10.

With the bank's workforce having fallen by a third from about 16,000 in 2008, McDonagh refuses to comment on how many more employees face redundancy as the massive IT programme is completed. The Irish Times reported last October that Boucher's team had been working off estimates that the project would lead to more than 1,000 job cuts.

“All that I can say is that there will be fewer people in the future than we had in the past,” she says. “But isn’t that the case for every bank in Europe?”


Name: Francesca McDonagh

Position: Chief executive, Bank of Ireland

Age: 43

Lives: Dalkey, south Co Dublin

Family: Married. Her husband commutes from Dublin to London, where he has a business

Something we might expect her to say: "I want us to be the national champion bank in Ireland."

Something that might surprise: "I really like watching boxing. I was brought up in the Frank Bruno/Mike Tyson era as my family watched a lot of boxing. I think it's quite a fascinating sport."

Francesca McDonagh on:

Her plans to have 50:50 gender ratio by 2021:

“Shareholders and investors are becoming more and more interested in diversity. There’s lots of proof that diverse teams make better decisions. Half our customers and half of society is female. If we want to be more relevant as a bank, we should reflect the society we serve.”

Bankers’ bonuses:

“Talk about bankers’ pay is always a sensitive issue, but the reality is that if someone is paid more than you can offer them it’s very difficult to get them to come and work for you. I sometimes get asked by investors if there is some risk to our plan if you do not have variable pay. If you are not able to recruit when there is a vacancy or are not able to retain talent, that represents execution risk.”

On coming in as chief executive from outside:

“I think it’s very important to be visible as a leader, particularly if you are seen as an outsider, which can be quite threatening. I’m not in my office very often. I’m out and about a lot, in other offices in Dublin or in the branches. I like to do closed-door sessions, very informal chats, with groups of 10-12 people, whether it’s with colleagues in the trading room or a branch in Galway. I sometimes do three a week but I try and do them at least once a fortnight.”