Boucher leaves a mixed record

Richie Boucher leaves Bank of Ire­land back in profit but lend­ing is still fall­ing, writes Dan White

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

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.

Richie Boucher. Pic­ture by David Conachy

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