Monday 28 May 2018

Boucher leaves a mixed record

Richie Boucher leaves Bank of Ireland back in profit but lending is still falling

Richie Boucher Photo: David Conachy
Richie Boucher Photo: David Conachy
Dan White

Dan White

As he steps down after eight-and-a-half years as Bank of Ireland boss, Richie Boucher leaves Ireland's oldest bank in much better shape than it was in 2009. However, a decade after the crash, Bank of Ireland's loan book is still shrinking and almost a tenth of all its loans remain distressed.

When Boucher took over as chief executive in February 2009, Bank of Ireland was in rag order. In common with the other Irish banks, the bursting of the Celtic Tiger bubble had left it horribly exposed.

Bank of Ireland wrote off €12.6bn of bad loans in the six years to the end of 2013 and shrank its loan book by over 40pc, from €144bn to €85bn, over the same period. Bank of Ireland was only saved from extinction by a €4.8bn state bailout.

Bank of Ireland managed to avoid majority state ownership by the skin of its teeth through the sale of a 35pc stake to a group of North American investors, including current US Commerce Secretary Wilbur Ross, in 2011.

It may not be much consolation for Bank of Ireland shareholders, who lost over 98pc of their investment in the crash, but Boucher deserves at least some credit for keeping Bank of Ireland out of majority state ownership. The downside of Bank of Ireland staying private was that Ross and his fellow investors tripled the value of their €1bn investment when they sold most of their shareholding three years later - money that could otherwise have gone to the taxpayer.

With his sometimes brusque manner and, to some ears at least, harsh southern African accent, Boucher is someone respected rather than loved. There was much hilarity among Bank of Ireland staff when impressionist Mario Rosenstock featured a character called "Richie Banker", who bore an uncanny resemblance to Boucher, on his TV show in 2012. However, no matter how hard he drove his subordinates, Boucher drove himself even harder and at considerable cost to his health. Bankers are human too.

Unlike its main rival AIB, which until the crash generally appointed its bosses from within, Bank of Ireland has generally looked outside when choosing its chief executive. Boucher was no exception, having first joined Bank of Ireland from RBS in December 2003 as head of its corporate banking division. He became a director of the bank in January 2006.

Boucher was recruited at a time when Bank of Ireland was coming under pressure from investors for not competing aggressively enough with the likes of AIB, Anglo Irish and RBS' Irish subsidiary, Ulster Bank.

Things certainly livened up after Boucher joined, with Bank of Ireland's loan book swelling from just €57bn in September 2003 to €144bn by September 2008.

Boucher signed off on many of these new loans, with lending to SMEs and corporates accounting for 25pc of Bank of Ireland's loan book and construction and property loans for a further 26pc by the end of September 2008, when the Irish Government was forced to guarantee the deposits of the Irish banks - including Bank of Ireland's - a move that ultimately led to our throwing ourselves on the tender mercies of the Troika two years later.

How much responsibility Boucher bears for this rapid increase in lending is impossible to say, as Bank of Ireland did not break out its loans by sector in his early years at the bank. Yet he came to regret his backing of some of the highest-profile boomtime developers.

In 2015, he told the Banking Inquiry how a personal letter of support for developer Sean Dunne in 2007 was "one of the many stupid things I have done". Boucher sent the personally-signed letter to Dublin City Council in relation to Dunne's proposals for the Jurys/Berkeley Court site.

In July 2008, less than three months before the deposit guarantee, Boucher told the Oireachtas Finance Committee: "unequivocally, we do not think that there is a Northern Rock [the UK mortgage bank that suffered a 'run' by nervous depositors in September 2007] in Ireland".

He then went on to tell the assembled TDs and Senators that: "We do not believe that we have capital problems. The issues that we face are down more to liquidity than capital".

Oh dear.

So in what shape is he leaving behind the bank? It would be churlish not to acknowledge there has been major progress at Bank of Ireland.

It has been profitable since 2014, with a €1bn pre-tax profit recorded in 2016 and a further €455m for the first six months of 2017.

The Bank expects to pay shareholders a dividend in 2018, a move that would mark the final stage of its return to respectability in the financial markets.

Bank of Ireland customers may not thank Boucher however, particularly homeowners, who have paid much of the price for this return to profitability, with the bank having the highest variable mortgage rate of any of the major banks.

And while the group has not closed branches (unlike its competitors), it has led the way in bringing automation to branches, something older customers have not welcomed. While Boucher has been a strong supporter of keeping the branch network open and even using branches for alternative purposes, it will be interesting to see if his successor Francesca McDonagh carries this through.

For investors, so far so good. The bad news is that, in common with the rest of the Irish banking system, there are still deep, unresolved problems at Bank of Ireland. The most serious of these is undoubtedly the continuing very high level of problem loans.

At the end of June, Bank of Ireland had €5.4bn of impaired loans and a further €1.9bn of loans classified as "past due but not impaired" on its books, a total of €7.3bn. That was the equivalent of just over 9pc of its total loan book. The fact that a decade on from the crash, almost a tenth of its loan book is still distressed, is a sign of continuing unresolved problems at Bank of Ireland.

That the level of problem loans remains so high means Bank of Ireland is still shrinking its loan book. Total loans fell by a further 2.7pc, from €82.3bn to €80.1bn, in the first half of 2017. In common with the rest of the Irish banks, Bank of Ireland's main focus still seems to be on recovering as much as possible of its old loans rather than advancing new ones. Debt collection agencies rather than real banks.

A quick analysis of the Central Bank's mortgage arrears statistics shows 30pc of Bank of Ireland's loan books is made up of Republic of Ireland mortgages, and would seem to point to continuing problems in the loan books of all of the main Irish banks, including Bank of Ireland.

The Central Bank statistics show there were €22bn of restructured mortgages at the end of June. However almost 70pc of these restructures were interest-only, term extensions, arrears capitalisations and other short-term fixes. How many of these restructures would unravel in the event of an interest rate increase and/or economic downturn?

And if they did what would the impact on Bank of Ireland be?

As he heads off into the sunset Boucher, who was paid €961,000 last year, leaves a decidedly mixed legacy behind him at Bank of Ireland. While - unlike all its competitors - it avoided outright nationalisation and will deliver a profit to the state on its bailout, Bank of Ireland has been leapfrogged by AIB in recent years. Next year's resumption of dividends will come a year later than at AIB.

Despite a rapidly-growing economy, Bank of Ireland has also been unable to grow its loan book as it remains weighed down by poor quality legacy loans.

To paraphrase veteran bond trader Bill Goss, Boucher's Bank of Ireland could best be described as "the least dirty shirt" of the Irish banking system.

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