As a young banker, Eamonn Crowley landed in Warsaw in August 2002 straight off his post-wedding holiday with his wife Orlaith, to take on the role of a senior executive with AIB's then Polish unit.
The now 52 year old hasn't had much of a honeymoon period in his first 13 months as chief executive of Permanent TSB (PTSB).
While Crowley had been chief financial officer for three years at PTSB before the promotion – in a job that kept him busy offloading billions of euro of soured loans and dealing with plenty of other whack-a-mole problems in the Republic’s smallest bailed-out bank – he found himself taking over the helm in the middle of the Covid-19 shock.
Within four months, Crowley would be chasing a chunk of Ulster Bank's loan book. The outline of a deal, confirmed two weeks ago, will see PTSB buy €7.6 billion of performing mortgage and micro-business loans from the UK-owned bank. Crucially, it will boost the group's assets by 50 per cent and give it a real shot, after more than a decade of loan book shrinkage, at emerging as a viable bank.
The chief executive revealed in his first profile interview that he and his chairman Robert Elliott, made an initial approach last October, a month after The Irish Times revealed that Ulster Bank's parent, NatWest Group, was actively considering winding down its operation in the Republic.
“It was initially just us saying, ‘We’re here, we’re interested in talking’,” Crowley recalls in the interview in PTSB’s executive meeting room in its warren-like headquarters on St Stephen’s Green. “It took them a while to come back.”
Did they get a nudge from the Government, which continues to own a 75 per cent stake in PTSB following a crisis-era bailout, and was feeling the heat as the State’s longest-standing overseas-owned lender eyed an exit?
“No. This was on our own initiation,” he says. “We knew that, as an organisation, after a number of years of deleveraging, our issue wasn’t on the cost side of our business – it was actually on the income side. We recognised that growing our income base was important around the sustainability of the organisation. And here was an opportunity.”
PTSB’s continued existence since the outset of the financial crisis has been one of defiance of the odds. The lender may have been alone among the six lenders guaranteed by the State in September 2008 in subsequently avoiding sending toxic commercial real estate loans to Nama, having not been a player in funding property development. But it had other issues – as the most reliant on international bond investors for funding when debt markets seized, and being a pure mortgage lender when Irish borrowers started to default on home loans in their thousands.
When Crowley's predecessor, Welsh banker Jeremy Masding, was hired in 2012 to steady the ship, he had a tough time even persuading the Government and the European Commission that the company had a future at all after its €4 billion bailout. Still, PTSB managed to return to the main Dublin and London stock markets in 2015, after failing European Union stress tests in spectacular fashion. It completed the sale of its €6.5 billion UK loan book in 2016, when the Brexit vote was seen by many to have blown its chances.
When Crowley joined the bank in early 2017, he was handed the task of overseeing the reduction of the bank’s 28 per cent non-performing loans ratio that posed an existential threat to the lender. He executed the sale of billions of euro of problem loans – without blowing a hole in the group’s balance sheet.
However, the more Masding and Crowley chipped away at the immediate issues before them, the more they exposed its real problem. This was a bank, due to its shrunken size and vastly increased regulatory capital requirements, that was delivering an underlying a profit return on shareholders’ equity of 2-3 per cent a year, a fraction of the 8-10 per cent that analysts see as the sign of a healthy bank.
Crowley now expects the Ulster Bank loan purchase – combined with contraction of the Irish market from five retail banks to three, with the planned exits of Ulster and KBC Bank Ireland – to boost PTSB's return on equity to 9 per cent over the medium term.
The deal also boosts its tiny presence in the small-business loans market, an area he was intent on pursuing when his appointment was announced in June of last year.
“We’d been building our business banking team over the past two years, but this deal will give us extra volume and extra customers to really push that on,” he says. “It’s really exciting for us.”
A native of Churchtown in south Dublin, Crowley was just six weeks into a business degree in university in 1987 when he was offered a junior-level role with the then Irish Continental Bank (IIB) – now KBC Bank Ireland – and the ability to study to be a chartered accountant at night. It seemed like a no-brainer. "Most people were emigrating at the time so I decided to take the job," he said.
In 1991, Crowley joined a fund management unit of US insurance giant AIG in Dublin, with the group offering him a chance on the day he qualified as a certified accountant the following year to go to London. He was approached by AIB in 1994 to come back to join the group's international financial services business in Dublin's IFSC, a unit where he would ultimately become finance director, before moving to Poland in 2002 to AIB's majority-owned Bank Zachodni WBK (BZWBK).
It would be the first of three stints in the country over a decade and a half – including a time as chief operating officer of AIB’s then central and eastern Europe division, which, briefly, also included assets in the Baltics and Bulgaria.
What’s his Polish like? “My wife’s is much better than mine, but I could get by. I could order a beer or a pizza or a taxi.” In fairness, Polish is regarded as one of Europe’s hardest languages for native English speakers, with seven grammatical cases, five genders and a notoriously difficult phonology.
When AIB decided to put BZWBK on the market in March 2010, after the group was found to have a multibillion-euro hole in its balance sheet during stress tests, Crowley was based in Dublin. “Within a week, I was back in Warsaw to manage the deal.”
In mid-September 2010, AIB agreed to sell its Polish unit to Spain’s Santander, which already had a consumer lending business in the country, for €3.1 billion.
“It was a knock-out price,” he says of a unit that had grown to become something of a jewel in AIB’s otherwise tarnished crown. “Still, it was a shock for our Polish colleagues, who had absolutely bought into the Irish story. When the announcement came, they felt really let down.”
Crowley was among a small number of AIB men in Poland who were asked to move with the change of ownership, with him becoming the chief finance officer of the unit. He soon found himself in Santander’s Madrid headquarters working on a plan for BZWBK to buy KBC’s operation in Poland – a deal that would, when completed in early 2013, made it the clear number three in the market.
Between 2010 and 2017, Crowley commuted from his home in Dublin, where his wife and four children were based, Monday to Friday. And it was taking its toll. “Santander was a fantastic organisation and I had opportunities within Santander to travel, but I had a drawing for home at that stage by the time I was approached [in 2017] about the Permanent TSB CFO role,” he says.
“I looked at PTSB not unlike how AIB’s Polish unit was back in 2002, when it had a 25 per cent non-performing loans ratio, was only making €20 million a year – and was a distant bank to the top two in the market,” he said. “The PTSB role actually excited me and I felt I could make a difference.”
At the outset of the Covid-19 crisis in March last year, Crowley was in the awkward position of having been quietly selected by the group’s board to succeed Masding – who had had enough after eight years – but still not having got through the Central Bank of Ireland approval process.
PTSB agreed temporary mortgage payment breaks with 10,700 customers, who owed a total of €1.6 billion, equivalent to 10 per cent of its loans, last year. It was part of an industry-wide initiative to give households and businesses breathing space as they absorbed the shock. Some 1,000 of these customers have required additional forbearance after the breaks came to an end.
The bank also allowed half of its 2,400 employees to work remotely, while keeping its branch network open. The group plans on putting hybrid working arrangements in place for much of its staff following the pandemic.
“Like many other businesses, the things we did in a short space of time would have taken years in another environment,” says Crowley. “What the pandemic has actually done is speed up decision-making – it has brought more layers of the organisation together, in a collective way, around things.”
Haggling with NatWest over the shape of the Ulster Bank deal, which will include the transfer of 25 branches and up to 500 staff as well as the UK banking group taking a stake in PTSB, was also carried out over video calls, throwing up its own challenges. “At times you’d rather be in a room together, but it worked out.”
Last week, PTSB reported a net loss of €5 million for the first half of the year, narrower than the €54 million shortfall for the same period of 2020, as its loan impairment charge fell to €3 million from the €75 million provision taken in the early days of the coronavirus crisis. The bank booked a total charge of €155 million for the whole of last year.
For now, the bank thinks it was too early to consider releasing some of the provisions as it monitors the ongoing pandemic and vaccine rollout, gradual reopening of the economy, and the inevitable easing of Covid-19 Government supports for businesses and households.
Loan defaults across the industry have, so far, been kept in check. Still, AIB chief executive Colin Hunt said this week that it would likely be another 12 months before banks have a real sense of the scale of the damage of the crisis on loan books.
Meanwhile, Crowley has surprised stock market investors by managing to construct the Ulster Bank deal in a way that will save him from having to go to taxpayers and other shareholders for the estimated €440 million of capital that will be needed to support the €7.6 billion loan purchase.
Part of this will come from NatWest selling the Ulster Bank loans at enough of a discount to their fair value to generate a capital gain for PTSB – or what is known as “badwill”. The remainder will be covered by NatWest accepting up to a 20 per cent stake in PTSB as part payment for the loans.
Crowley said that the low market value of PTSB was a key factor in avoiding a capital raise. Even though the bank’s market value has jumped 50 per cent to €655 million since it was confirmed in February that it was in talks with Ulster Bank, the stock is still changing hands at a little more than a third of the value that analysts put on its assets.
“You could argue that it’s not credible to be raising so much capital on a low market value,” he said. “Personally, I think it’s very positive having NatWest as a shareholder. I see it as a significant vote of confidence. I absolutely assume that NatWest believes that our value will increase in due course.”
Crowley said the question of NatWest making appointments to PTSB’s board hasn’t come up yet. He also isn’t offering a view as to how long the UK group will stick around.
But he will be left, when the Ulster Bank deal is completed next year, subject to regulatory approvals, with two unnatural major shareholders that will ultimately want out. The Government’s holding is on track to be diluted from 75 per cent to 60 per cent as a result.
Still, if Crowley manages to deliver on his plan of reaching a 9 per cent return on equity, finding buyers for the Government’s and NatWest’s shares shouldn’t be a problem.