Bank of Ireland investors eye D-word as O’Grady takes charge

Myles O’Grady, the former Bank of Ireland chief financial officer confirmed on Monday as its next chief executive, will be able to skip the induction when he takes over the helm later this week.

Which is just as well, because one of the top items on his agenda will be to carry out a refresh of the group’s strategy and financial targets, which the group had been planning for the end of this year before Francesca McDonagh handed in her notice in April.

The expectation is that Mr O’Grady, who was chief financial officer until March before a short-lived time at Musgrave Group, will deliver the outcome of the review when Bank of Ireland reports full-year results next spring, according to Goodbody Stockbrokers analyst John Cronin.

Investors aren’t expecting a drastic change in direction, as Mr O’Grady was heavily involved in the strategy set by former McDonagh.

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But with Bank of Ireland on track to take over KBC Bank Ireland’s €9 billion of performing loans early next year and the European Central Bank (ECB) having set off on a series of aggressive interest rate hikes, the lender’s target of delivering a return on tangible equity of more than 10 per cent is no longer looking as ambitious as it once was.

One of the “final pieces of the jigsaw from here”, according to Diarmaid Sheridan, an analyst with Bank of Ireland’s Davy, is an update on the bank’s distribution policy surrounding cash to shareholders – the dividend.

At the moment Bank of Ireland’s dividend policy is that it “will increase on a prudent and progressive basis”, building “over time” towards a payout equivalent to 50 per cent of sustainable earnings. Investors are looking for something more concrete now that the outlook for interest income has improved dramatically in the wake of the ECB rate moves.

And while Bank of Ireland spent €50 million earlier this year on its first share buyback in two decades, Mr O’Grady will be expected to provide more clarity on surplus capital returns in the strategy refresh.

The bank’s ability to provide greater clarity around distributions will have been helped by the fact that its non-performing loans ratio will fall to 3.7 per cent, around EU norms, following a deal to sell another few batches of problem loans last week. The ratio will fall even further once the KBC loans are taken over.

Still, Mr O’Grady will need to have a good handle on where non-performing loans are headed in light of the cost-of-living crisis before making any firm distribution commitments.