Back with more modest ambitions

Having previously manoeuvred Bank of Ireland away from a low period as chief executive, Pat Molloy returned to the bank as governor two years ago. Kyran Fitzgerald asks if he can now pull off another rescue act at Ireland’s ‘least bad bank'

THE job of chairman of a bank is not one for the faint-hearted these days.

Pat Molloy almost found this out the hard way when he found himself the target of ace egg thrower Gary Keogh at Bank of Ireland’s annual shareholder get-together up at UCD.

The Bank of Ireland governor can no doubt shrug off such gestures. He remains a widely respected figure within the investment community, but will be well aware that the bank’s shareholders have every reason to feel disgruntled about their lot given the abject performance of the share price over the past year, down from 89 cent a year ago, to around 12 cent today. Back in February 2007, the share price stood at almost €19 and the bank was valued at almost €20 billion.

However, when Molloy succeeded Richard Burrows as chairman in July 2009, Bank of Ireland was on the floor and facing a battle for survival. People wondered why a respected industry veteran, 71-years-old, should wish to invite so much trouble in through his front door.

Two years on, what you have is a mixed picture: Real achievement within the organisation, but with an external environment of almost unremitting hostility.

Management find themselves embroiled in a battle to stave off nationalisation. One leading analyst, speaking privately, predicts that the state will end up with a shareholding in the region of 60%. Given that the bondholders and private equity investors may also end up holding substantial stakes, it is clear that existing shareholders will take a big hit in any recapitalisation.

In recent weeks, the governor has been the target of barbed criticism over disclosures of large loans taken out from the bank to parties “connected” to him. Insiders point out that the list of connected parties is extensive and that the loans could date back years, given that details have only emerged as a result of a new disclosure requirement. They point out that the governor may himself be unaware of the details of the loan, given confidentiality requirements. The bank has also come under fire over its reluctance to remove all pre-2008 directors from its board and the continued presence of Richie Bouchier as group chief executive, a key figure in the run up to the crisis.

But there have also been some real achievements.

The bank reported better than expected results for 2010 in April, with non-NAMA loan losses falling from €2.27bn to €1.88bn. Pre-tax losses fell from €1.8bn in 2009 to €950 million, with an operating profit of over €1bn before bad debts.

Despite €2.5bn written off on loans to NAMA, all in all, Bank of Ireland has put considerable distance between itself and AIB.

It has come through the rigorous examination of its books through its consultants, Blackrock Asset Management. Its main problem is that Bank of Ireland is viewed as a proxy for the economy at a time when the European sovereign debt crisis is raging and when the chances of Ireland re-entering the debt markets appears remote.

The November European Union/International Monetary Fund bailout represented a hammer blow to confidence in the country.

Corporate deposits have taken flight, hampering the bank’s chances of recovery. The main banks must now tap the European Central Bank and Ireland’s Central Bank for funds. They remain on life support.

The emphasis now is on rebuilding the bank’s capital base. The holders of €2.6bn in junior debt are being coaxed, if not bullied, into a debt for equity swap, while the state is underwriting a rights issue with the aim of raising a total of €5.2bn.

The bank is in the process of downsizing its loan book: Bank of Ireland Asset Management has been off-loaded, New Ireland Assurance will be sold within the next couple of years, the US real estate loan portfolio has been put on the market and up to €5bn in loan assets are being shed.

All of this has left the governor with a pretty full in-tray. Normally, the chair of the bank “court” would have been expected to preside over eight meetings a year. Molloy has chaired 52.

The capital raising process requires continuing ongoing contact with the Government, a 36% shareholder, and with Brussels. Large numbers of documents must be perused.

On his arrival in July 2009, the bank had just received an injection of €3.5bn in preference capital from the state. New directors were appointed at the behest of then finance minister Brian Lenihan. Significant reporting requirements were put in place and the board had to begin a process of engagement with the EU competition authorities.

The restructuring has to be signed off with Brussels — this process should be finalised within weeks.

Molloy, at least, has been here before. In 1991, he took over as chief executive at a time when the bank’s fortunes were at a low ebb.

The bank had suffered heavy losses in its US subsidiary, First New Hampshire Bank, following a collapse in the New England property market.

It was also shipping heavy losses in Britain as a result of the property crash there.

Molloy took the strategic decision to acquire two additional banks in New Hampshire. It worked. In late 1995, First New Hampshire was merged with Royal Bank of Scotland subsidiary, Citizens Financial. In Britain, Molloy closed down British Credit Trust while paying £600m to acquire the Bristol & West building society. His last move was to acquire New Ireland for IR£274m.

Overall, the results card was pretty positive. Molloy, a bank “lifer”, was well regarded by bank staff and many in the investment community believe the bank would have engaged in much less boom time lending in the last decade had he remained in charge. That point is debatable.

It would have taken an exceptional chief executive to resist the lemming rush of lending that occurred, particularly after 2002.

Thirteen years on from his departure as chief executive, Molloy’s ambitions are more modest — the re-establishment of Bank of Ireland as a real player in the domestic scene and the restoration of some shareholder value. Molloy himself holds two million shares, having taken up shares in the rights issue at 55 cents. He can feel his shareholders’ pain — he is one himself.

Now aged 73, he may well be minded to depart the job in the summer, but only after the recapitalisation exercise has been successfully completed. It could be years before we will know whether he has helped to pull off another rescue act at Ireland’s “least bad bank”.

As one analyst put it: “There are challenges to be surmounted. It is in a difficult position.”

Getting to know: Pat Molloy

Age: 73.

Born: Ballinasloe, Galway.

Education: St Joseph’s College. TCD — Business Studies. Graduated in 1969.

Career: 1956: Left school to study engineering. 1957: Joined Bank of Ireland. 1971: Manager, group marketing department. 1975: Assistant general manager — branch lending. 1983: Managing director, retail bank. 1991-1998: Group chief executive. 1998-2001: Director/ member of the ‘court’, Bank of Ireland. 2009 to-date: Governor.

Chairmanships: CRH Plc (2000-2007); Enterprise Ireland (1998-2008).

Other: President, Institute of Bankers.

Family: Five children.

Leisure: Shooting and fishing.

Picture: Niall Carson

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