Irish bank valuations are being weighed down by the perception of tight regulations around remuneration policy, according to analysts at Barclays.
The note from the UK-based bank followed the announcement last week that Bank of Ireland group chief financial officer Myles O’Grady was leaving to join SuperValu owner Musgraves.
In the note covering the departure of O’Grady, a Barclays analyst said that while Bank of Ireland did not state the reason he was leaving, it had mentioned the challenges remuneration restrictions represented for Irish banks in “attracting and retaining talent”.
“There is a perception that there is a tighter regulatory backdrop in Ireland, and we think this weighs on the valuation of Irish banks,” the note said. “This includes remuneration policy and capital requirements.”
Under remuneration restrictions put in place after the financial crash, a salary cap of €500,000 applies at bailed out Irish banks, while an 89pc tax is also imposed on any bonuses paid by them.
A senior source at Bank of Ireland also said they believed the perception of increased intervention was weighing on the share price.
“Why are bank stocks [here] valued lower relative to European peers?,” asked the source. “Even though there has been a recovery in bank stocks, their price right now is about 0.6 to book value.
“There isn’t really a logic for that,” the source added. “Implicit in that is a concern around the topic we are discussing [remuneration policy]. It is not explicit, but it is there.”
The Bank of Ireland source also said companies in other sectors, particularly other financially regulated firms not subject to the pay restrictions, were actively targeting talent in Irish banks because of the remuneration rules. The source said the issue was more around the variable, performance-based pay offers such firms can make, as opposed to providing salaries above the €500,000 cap.
A senior source in recruitment also said sectors were targeting bank staff. The source said financial technology companies were “really going after” bank staff in risk and compliance. They were also looking at employees in customer support, sales and technology.
The recruitment source believed being able to avail of variable pay was only one reason why bank staff might be tempted to enter other sectors. Other issues included work flexibility.
The source added staff could generally move and potentially earn up to 50pc more in new roles.
The Department of Finance said Paschal Donohoe, the Minister for Finance, has previously said he believes the issue of bank remuneration is central to further restoring public confidence in the culture and accountability of Irish banks. It added the forthcoming SEAR [senior executive accountability regime] and the Central Bank (Amendment) Bill would help reassure the public that cultural change is under way in the banking sector.
The spokesman added Donohoe is considering the terms of reference for a review of the banking sector and will bring a memo to the cabinet in the coming weeks.
Bank of Ireland said restrictions prevent Irish banks from competing for talent on a level footing.