Sunday 22 September 2019

'I've taken personal accountability to help restore trust in Bank of Ireland'

CEO Francesca McDonagh aims to make the bank the lender of first choice, she tells Group Business Editor Dearbhail McDonald

Francesca McDonagh, CEO of Bank of Ireland. Picture by Fergal Phillips
Francesca McDonagh, CEO of Bank of Ireland. Picture by Fergal Phillips
Dearbhail McDonald

Dearbhail McDonald

Curriculum Vitae


Francesca McDonagh




Group Chief Executive, Bank of Ireland


Househunting in south Dublin


Bachelor of Arts Degree in Politics, Philosophy and Economics from Oxford University

Previous experience

Worked at HSBC for 20 years, most recently responsible for UK retail banking, serving 16 million customers and leading a team of 20,000 across a 1,000-branch network.

Former deputy chair of British Bankers Association, former board member of the National Centre for Universities and Businesses in the UK.


Married, two dogs.


Travel, reading, running

Favourite book

So many to choose from, but One Hundred Years of Solitude by Gabriel Garcia Marquez is up there.

Favourite holiday destination



The tracker recordings were harrowing. The desolate callers included homeowners and amateur landlords suffering bereavements, looking after a sick child or parent or battling their own health problems. Each customer had their own, unique story: all were united in deep distress over their mortgages.

Reviewing the playback calls and poring over samples she had ordered of tracker mortgage files wasn't how Francesca McDonagh imagined she would spend her first days as Bank of Ireland's first female chief executive, only the second 'outsider' in its 235-year history.

But the exercise, accompanied by mounting public anger, politicians up in arms and a resurgent Central Bank that had itself come under sustained fire for its handling of the system-wide, €1bn tracker mortgage scandal, contributed towards a staggering U-turn last November by Ireland's largest lender.

For months, Bank of Ireland played hardball, its former CEO Richie Boucher provisioning for only €25m to cover the cost of tracker restoration and refunds for customers including 2,000 of the bank's own staff.

But within weeks of her appointment, and following heartbreaking testimony before the Oireachtas finance committee from homeowners affected by the tracker controversy - leading to Finance Minister Paschal Donohoe branding the banks' behaviour over trackers as "disgraceful" - Francesca McDonagh tackled the issue head on.

Revealing that another 6,000 - on top of an original 4,300 of Bank of Ireland's customers - were affected, the new CEO also announced that she was setting aside a further €150m-€175m for compensation and redress. McDonagh, who blazed a 20-year international trail with HSBC bank, transforming its retail and IT functions, also broke with her predecessor by apologising "unreservedly" to those affected by the tracker scandal.

"I believe that the way in which we address this issue will define the customer-centric culture we aspire to at Bank of Ireland, and this is why I have made resolving this issue my personal priority," said McDonagh last November, staking her future at Bank of Ireland on fixing the lender's past misdeeds.

Listening to the playback calls brought home to the British-born banker the brutal effects the tracker scandal has had on families and the renewed collapse in trust of Irish taxpayers who injected some €4.8bn into the bailed-out bank at the height of the global financial crisis.

"I didn't make decisions exclusively on that [the calls], I had to look at a balance of factors," says McDonagh (43) in this her first media interview.

Bank of Ireland's new CEO has dispensed with the need for her own office, preferring to hot-desk around the banks' many back office buildings and its 250 branches so she can immerse herself among staff and customers.

"Mortgages are a product line for us, but it's also the most important thing in many of our customers' lives," the empathetic and engaging South Londoner explains in a suite at Bank of Ireland's new Baggot Plaza offices in Dublin.

"Some of the most difficult cases were where people were querying, challenging their mortgage, or under financial stress because the mortgage rate was higher than maybe they had anticipated and higher than it should have been at a time when they were dealing with additional costs to look after a really sick parent or a sick child.

"We've all gone through personal health issues, the loss of a loved one or children not being well and the last thing you want to be worrying about is whether you can pay your mortgage at the end of the month. It was a reminder of why people come to us for a mortgage and what it's all about."

McDonagh says that she looked at the tracker issue from a customer perspective - on one occasion throwing the lawyers out of the room during a review of disputed cases. "Even though we had a lot of opinion around the legality and the construct of our contracts, which is a really important part of the examination, we also mapped what a customer journey would have been," she says.

"So the lawyer is out of the room. I pretend I'm the customer and ask: What products, what documents did I see? What would the person in the branch be telling me? What was the interest rate environment at the time, and what was going on in the world at every step of the tracker process? That's what led to a change in our approach."

Although she had no hand in the tracker controversy, it's the banking issue du jour that is simply not going away. It flared once again last week when Central Bank Governor Philip Lane told the Oireachtas Finance Committee that the culpability of senior bankers in the State's main lenders will be investigated as part of the regulator's enforcement actions over the tracker mortgage scandal.

Lane, who said four enforcement actions are under way, told TDs and senators that the Central Bank will consider all possible angles, including potential individual culpability. "While we are investigating, it is also important to remember that the board members and senior personnel of lenders have significant legal obligations to report potential regulatory breaches to the Central Bank," said Lane, ominously.

McDonagh says she received huge backing from Bank of Ireland's board, chaired by Archie Kane - and populated by financial services luminaries such as FBD boss Fiona Muldoon - to adopt a customer-centric solution to its tracker problem, prompting the concession of another 6,000 affected customers, including 2,000 of its own staff. The swift turnaround begged questions to the prior approach not just of Bank of Ireland's board and senior management, but by the senior leaders and boards of 15 banks long before Donohoe aired his "disgraceful" remark.

How did the sector in general and Bank of Ireland in particular get it so wrong on trackers?

McDonagh takes a breath and replies, diplomatically, that she doesn't know if there was one single root cause. But she agrees, at the very least, that banks, including her own, took decisions which disadvantaged their customers.

"When I look at Bank of Ireland, this was a different time where trackers would have been a loss-making product for many of the banks," she says. "There were initiatives to address that and maybe focusing at times more on shareholder interests than consumer interests."

It's not just regulators: shareholders will be anxious, next month, to see how much of a line McDonagh has drawn under the tracker scandal when she presides over her first set of year-end results for the bank, despite being in the role less than six months. McDonagh says the tracker issue will be resolved by March, with 100pc of all live mortgages now on the correct tracker rate and compensation offered to eight out of 10 customers.

"Customers have gone through a lot of distress. My objective here is not to save money - my objective is to do this as quickly and efficiently as possible. From a shareholder perspective, this isn't about writing a blank cheque to draw a line under. It is difficult to put a price on the damage to reputation... we could destroy value by dragging this out."

It has been a baptism of fire of almost biblical proportions and one wonders would McDonagh have taken on the role at all had she known what lay beneath?

Despite strong growth in new lending, Bank of Ireland's share price was sluggish last year, outpaced by AIB whose partial return to the markets last June was the biggest IPO in Europe and marked a major turning point for Ireland Inc. Bank of Ireland's Brexit exposure is more significant than most - 40pc of its loans are in the UK - unhelped by sterling volatility since the June 2016 poll. But 2018 has started off strongly for the stock, which has gained more than 10pc in recent weeks and McDonagh is also set to deliver Bank of Ireland's first dividend in 10 years, a talismanic feat which eluded Boucher.

Investors and analysts appreciated, and have responded well to, McDonagh's early and decisive handling of the tracker scandal. But trackers were just one of two major issues she inherited.

How McDonagh delivers growth and how she deploys a near-€1bn investment plan (initiated before her arrival) to overhaul the lender's digital offering could yet determine this cultural change-maker and fintech enthusiast's legacy.

Indeed it is this, the implementation of her core banking programme, formerly known as 'Project Omega' - although this moniker appears to have been dropped - that the markets will be looking out for most when McDonagh delivers her first year-end results next month.

Bank of Ireland has been a laggard in the digital revolution. The core banking programme, a €900m IT upgrade, is the much-hoped-for panacea to improve customers' experience while reducing the bank's cost/income ratio to less than 50pc - it's currently some 58pc.

Digital transformation is what McDonagh does.

Joining HSBC as a graduate trainee, she closed out a 20-year career in far-flung locations such as Egypt, Indonesia, Mexico, Panama, Hong Kong, Dubai, Oman and London. In her final posting, as group general manager and regional head of retail banking and wealth management for the UK and Europe, McDonagh won huge plaudits for delivering the 'Onesie', deploying smart technology to enable one-day mortgage approvals. She also presided over a serious cull, of bank branches: HSBC has more than halved its high street presence since 2011.

Digital success comes at a price in terms of reduced staff numbers and bank closures.

Never-denied reports last year estimated that Bank of Ireland, whose staff numbers peaked at 16,000 at the height of the boom, would see another 1,000 of its current 10,000 culled by 2019.

McDonagh says she is not focused on branch closures in Ireland, where 40pc of Bank of Ireland's 250 branches are advice and self-service ones - where 97pc of all transactions are done digitally or outside of the window rather than with a teller.

"I know, from my experience in the UK, that the impact that a branch closure or change has on the local community can't be underestimated," she says. "Digital is not just about millennials: they're a very important part of our future. But many of our current customers are older customers or in rural Ireland."

McDonagh insists she is not working to any redundancy target, but she is not ruling anything out neither. "There will, in future, be fewer people working at Bank of Ireland than we have today," says McDonagh, who predicts huge disruption in financial services from technology, including cryptocurrencies and fast payment systems.

"As long as we have cash in society, we will need cashiers and tellers working in many of our branches. But the skill set of many of our people will shift to having more digital skills, and we're investing in those, or working in a different way.

"So if you're going to go to the new core banking system there will be more straight through processing, so many processes and payments will reduce. The people that do those now we'll be reskilling, giving them other opportunities. There will also be natural movement of people. Maybe there's some vacancies in areas that will be replaced by technology that we don't then recruit a permanent replacement.

"So we don't have exact numbers, but I do anticipate that the total number of employees in the future at Bank of Ireland is likely to reduce gradually as the skill set and profiles of those roles also evolves. You can't make any changes to the number and the profile of our people until the technology arrives. Otherwise, there's a gap there and that will impact on customers."

McDonagh is coy about her detailed strategy for Bank of Ireland, including any potential acquisitions or her post-Brexit strategy in the UK, reserving her firepower for her first set of results on February 26. But she is targeting wealth-management services and is banking on significant growth in Ireland's mortgage market despite - or perhaps because of - the housing supply crisis.

BoI, which has one of the highest variable rate mortgages in the country - which could soon set her on a collision course with politicians and the public - increased its share of new mortgage lending to 27pc last year, up from 25pc in 2016.

"The biggest part of our balance sheet is mortgages in the Republic of Ireland," says McDonagh, who says she has a dedicated €1bn fund at her disposal to finance construction and development projects. "We have grown our market share and it's something that we've been very proud of because it means that more customers are opting to make what is the most financial decision of their lives with Bank of Ireland. I think the total mortgage market will grow and we will start seeing that as being a key driver in our own growth story."

For all the high expectations and challenges, including an, at times, damning indictment of Bank of Ireland courtesy of its first staff survey in a decade, McDonagh is brimming with enthusiasm about her new mission and new life in Ireland. In fact, McDonagh, a firm Remainer in the Brexit debate, may not solely describe herself as a Briton for much longer. Like thousands of others, McDonagh, whose grandparents are Irish - she spent summers in Carraroe as a child - has joined the post-Brexit flight of British applying for an Irish passport, using the so-called 'granny' rule.

"It just feels right," says McDonagh, who is waiting to hear if her application, which involved poring over her family history with an aunt, gets the green light. "There are quite a lot of McDonaghs in Galway so the family tree is quite complicated," she says, adding that she has been overwhelmed by the welcome she and her husband - who commutes from Dublin to the UK where he has a business - have received here.

But why Ireland, I ask? And why take on an admittedly big role in a minnow bank, relative to the international behemoth that is HSBC?

"As you get a bit more mature in your career, you start thinking about your sense of purpose," she says thoughtfully. "This isn't just a posting for me. I'm living here, I'm resident. I'm in the process of buying somewhere to live."

McDonagh says that it felt right, being the CEO of Bank of Ireland, that if she had the opportunity to apply for an Irish passport that she would take it. "I would be proud travelling and using that passport ... I know I'm not the only one applying, so I'd be very happy if I did get it."

McDonagh, who brought in her own chief of staff and is expected to make big changes in the upper echelons of Bank of Ireland, has placed the restoration of trust at the heart of what she says is her core strategic aim: to overhaul the culture at the bank and make it consumer-centric.

Customer centricity is the kind of PR phrase that can make hard-pressed and weary taxpayers - as well as sceptical hacks - grit their teeth.

McDonagh spots this and begs my indulgence.

"The most successful companies in the world are typically the most purposeful," she says. "We have defined Bank of Ireland's purpose as enabling our customers, colleagues and communities to thrive. The lowest common denominator is one of trust. The tracker issue reminds us of the fragility of some of that trust. I've taken personal accountability, together with my team, to help restore trust in Bank of Ireland."

Where will she and the bank be in five years' time? A successful run could lead to a CEO role at a major institution in the UK or beyond, but McDonagh says she's not thinking of leaving Ireland at all.

"When I think of our five-year vision, we should be very ambitious about our opportunity to grow with Ireland, to grow with our customers' own ambitions in life - that thriving point is very important," says our potential new citizen.

"I want us to be a national champion for banking in Ireland. I want us to be the bank of Ireland."

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