Myles O’Grady: Banking is ‘in my blood and it’s certainly what I am best at’

Myles O’Grady, the career banker of three decades installed as Bank of Ireland’s chief executive in November, seems to have finally accepted his métier after brief spells in the house building and retailing sectors in recent years.

“There were two occasions where I stepped away from banking, but I was just pulled back,” O’Grady told The Irish Times this week in his first interview since taking on the top job at the State’s biggest bank by assets and stock market value. “It’s in my blood and it’s certainly what I am best at.”

O’Grady, who rejoined the bank less than eight months after quitting as its chief financial officer last March to work for Musgrave Group, the food wholesaler and retailer, presided on Tuesday over the lender reporting a 12 per cent surge in net interest income last year, to €2.48 billion, and guiding that it will hit €3.36 billion this year.

There has never been a better time since the heady days before the property crash to lead an Irish retail bank, or, specifically, to lead Bank of Ireland, given the CEO’s dramatically improved pay prospects only months into the job.

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Following a dozen years of retrenchment by foreign banks left burned while trying to get a piece of the Celtic Tiger, the final two overseas players, KBC Bank Ireland and Ulster Bank, are exiting. That leaves just Bank of Ireland, AIB and Permanent TSB to dominate the market. Bank of Ireland has acquired KBC Ireland’s €7.8 billion of mainly performing mortgages.

Central banks around the world are increasing interest rates after a decade of cutting them as they combat soaring inflation. That change is turbocharging net interest incomes, and Irish banks are among the best placed in Europe given their higher reliance on interest for revenue than the average bank on the Continent.

Robust demand

Despite the global cost-of-living crisis and rising borrowing costs, the domestic Irish economy, at least when measured by modified domestic demand (MDD), remains robust – even if it dipped into a technical recession by contracting in the final two quarters of last year. The Central Bank estimates that MDD will expand 3.1 per cent on the whole this year, albeit down from 8.2 per cent in 2022. That’s important for investors who see the retail banks here as a play on the Irish economy.

Unveiling a strategy refresh after less than four months in the job, O’Grady has set his sights on the bank posting profit returns out to 2025 equivalent to about 15 per cent of tangible equity (ROTE) that investors hold in the business. A figure between 8 and 10 per cent is seen by analysts as a key sign of a healthy bank. Bank of Ireland’s ROTE stood at 6.6 per cent in 2019, immediately before the pandemic.

[ Bank of Ireland confirms Myles O'Grady's appointment as CEO ]

He also plans to increase dividends from 25 per cent of last year’s profits to 40 per cent over the coming years, with flexibility to move as high as 60 per cent. Large capital returns are also on the cards for shareholders as the bank expects to generate strong profits to leave its capital reserves higher than its own targets over the time frame of the strategy.

“We’re very excited about the refresh strategy,” says O’Grady. “We’re now operating in a very attractive market. While I know there is short-term uncertainty, the Irish economy is proving itself to be resilient.”

So far, the rising cost-of-living has not resulted in an increase in households running into problems with mortgages, O’Grady says, echoing comments from senior executives at AIB and Permanent TSB in recent weeks.

All three Irish banks have lagged behind European rivals in passing on loan rate increases as the European Central Bank (ECB) hiked its main lending rate from zero to 3 per cent since last July. However, they have also been reluctant to pay up much for deposits, even as they are currently making a 2.5 per cent return on tens of billions of excess cash stored with the central bank. The best deposit rate available at Bank of Ireland is 0.75 per cent for retail savers for amounts of up to €15,000.

Starting off

O’Grady, who was brought up in south Dublin coastal suburb of Booterstown, knew from the time he was preparing for the Leaving Certificate in the late 1980s that he wanted to go into banking, after studying accountancy.

Starting off his career in 1990 as an accountant in AIB’s financial control unit, O’Grady moved five years later to London to join investment bank Dresdner Kleinwort Benson in a finance role in the its global equities business. He was hired in 1999 by Citibank in the UK, where he spent much of the next three years working on plans to shift group activities to less expensive locations. Citi’s outfit in Dublin’s International Financial Services Centre (IFSC) was a key beneficiary.

What I learned through that crisis is that [banking] has to work for everybody. I really believe that if you do all that well and you pay attention to all stakeholders, it works for shareholders as well

—  Myles O'Grady

O’Grady returned to Ireland in 2002 to become head of finance at Bord Gáis Energy and found his way back to AIB four years later, just before the first signs of cracks emerged in global and Irish banking.

He spent five years, from 2013, working as director of finance and investor relations, a period that saw AIB return to operating profit for the first time after the crash and the bank float again on the main Dublin and London stock markets. That allowed the Government to sell a large block of shares to recoup a chunk of the bank’s €20.8 billion rescue bill.

So, what lessons has he carried from the crisis? “I know CEOs will always talk about stakeholders – like customers and colleagues and shareholders – but for me it’s real. What I learned through that crisis is that [banking] has to work for everybody,” he says. “I really believe that if you do all that well and you pay attention to all stakeholders, it works for shareholders as well.”

O’Grady quit AIB in the middle of 2018 and joined a housebuilder called DRes, that was at the time being lined up for flotation. The deal would end up being put on ice later in the year amid general market turbulence at the time.

Within weeks of O’Grady joining Bank of Ireland in mid-2019 as director of commercial partnering in Ireland, the group’s then chief financial officer (CFO) Andrew Keating announced he was quitting to join CRH, the building materials giant. O’Grady went for the CFO job and got it.

O’Grady handed in his own notice just two years later. The bank publicly laid the blame on pay restrictions in the banking sector, arguing it put domestic lenders at a “competitive disadvantage” when it came to “attracting and retaining talent”.

‘Learn a new sector’

The reason for leaving for Musgrave, a sixth-generation family business that dates back to 1876, was more nuanced by O’Grady’s telling.

“I’m always motivated by the desire to make a difference. And the opportunity in Musgrave was to use my skills and work with their CEO Noel Keeley to take the company to the next stage of its corporate development,” he says. “Of course, remuneration was always going to be a factor. But the ability to make a difference, learn a new sector, take myself out of my comfort zone, was the attraction for Musgraves.”

The attraction didn’t last long. O’Grady was less than a month out of the bank when then chief executive Francesca McDonagh, announced she was leaving to join embattled Swiss financial group Credit Suisse as a senior executive.

He’s vague when asked about the courtship that followed. “I had remained very close to many people in Bank of Ireland... so there were plenty of conversations going around and I was very happy to partake in that process to be CEO,” he says, adding that he is “very honoured” to be given the role. Ironically, Keating succeeded O’Grady as Musgrave CFO at the start of this year.

O’Grady signed up on the €960,000-a-year package that his former boss was on, benefiting from an exemption that successive governments had given Bank of Ireland CEOs from the €500,000, post-crash executive pay cap that applied across bailed-out banks. This was largely down to the group avoiding full nationalisation during the crisis.

The Government moved in December to lift the €500,000 cap at Bank of Ireland, three months after it sold its remaining crisis-era shares in the lender, and allowed banks to return to paying staff bonuses – albeit capped at €20,000.

It emerged in Bank of Ireland’s annual report this week that the lender plans to give O’Grady and his CFO Mark Spain shares worth up to 50 per cent of their salaries in the coming years, hiking their remuneration. The so-called fixed share awards are “not subject to any performance conditions”, leaving them outside the scope of an effective continuing ban on performance-related bonuses above €20,000 enshrined in the Finance Act 2011.

Beefed up

Following 14 years in which Bank of Ireland’s loan book contracted by almost 45 per cent to €73 billion – as a result of the sale of toxic property loans to Nama, borrowers repaying debt at a faster pace than taking on new borrowings and, in recent years, a decision to retreat from mass market mortgages in the UK for more “bespoke” and higher return home loans – the closure of the KBC loans purchase in February has immediately beefed up the group portfolio.

O’Grady also sees the balance sheet growing further in the coming years as the bank increases its share of a growing mortgage market (it accounted for 28 per cent of new home lending in 2022). In addition, he expects improvement in business banking, where net lending grew last year for the first time in more than a decade.

Bank of Ireland’s opportunistic repurchase of Davy, which put itself on the market this week two years ago amid the fallout from a controversial 2014 bond deal, increased assets under management in the group’s wealth and insurance business by 75 per cent to €39 billion when it was completed last year.

O’Grady says the bank estimates that it would be “appropriate” to offer a wealth product to customers behind “at least €10 billion” of the bank’s €99 billion of deposits.

The chief executive says that he is “as enthused today, as CEO, with the acquisition of Davy as I was, as CFO, back in 2021″, even if the capital markets part of the business was hit last year by a global downturn in financial markets and deal making.

Bank of Ireland will be turning 250 in a decade. Future-proofing this business is really important to me

—  Myles O'Grady

“The acquisition of Davy was truly a strategic investment,” he says of the €427 million deal, which involved about 900 staff and 50,000 Davy customers joining the group. Davy generated €80 million in income last year in its first seven months under the bank’s ownership. “This was about positioning Bank of Ireland as being the No.1 wealth partner in Ireland and building on our capability from our New Ireland and Bank of Ireland businesses.”

He confirmed that about 2,000 high-net-worth Bank of Ireland customers will soon move to Davy. A further 4,500 of clients that fit into the “mass affluent” bracket will remain with the bank’s so-called premier banking team.

Meanwhile, the recent completion of the KBC loans acquisition has seen fewer than 50 of the Belgian-owned bank’s staff transfer to Bank of Ireland – out of the 650 who were entitled to move with the assets.

Does that say more about Bank of Ireland’s attractiveness as an employer or the KBC’s planned redundancy package? “The latter,” says O’Grady.

Green agenda

Bank of Ireland, like most corporates, has been taking the green agenda more seriously in recent years. O’Grady highlights how in December the group became the first Irish bank to set scientifically validated greenhouse reduction targets, with a commitment, for example, to cut emissions from its residential mortgage portfolio by 48 per cent by the end of the decade as it continues to push green mortgages for energy-efficient homes and finance the retrofitting of houses.

“It might all seem a bit abstract, but we had what we describe as €8 billion of sustainability-related loans on the balance sheet as of last year – and we’re setting ourselves a challenge to grow that to €15 billion by 2025 and €30 billion by 2030,” he says.

“Bank of Ireland will be turning 250 in a decade. Future-proofing this business is really important to me.”

Name: Myles O’Grady

Job: Bank of Ireland chief executive

Family: Married to Rupee and their son’s name is Rian

Hobbies: Swimming, gym, reading, time with family and friends, and watching Rian play rugby and football

Something about him we might expect: He’s meeting investors around the world for next two weeks to share the group’s refreshed strategy

Something about him that might surprise: He speaks a little Punjabi because Rupee’s family are originally from India