McDonagh’s Bank of Ireland legacy is about far more than bankers’ salary caps

Slightly more surprising is the continued link between her exit from Bank of Ireland, which is set to take place this autumn, and the issue of banker salary caps.

McDonagh has been very vocal on this issue in the past and has also lost a CFO to an Irish company where the salary cap may well have been a factor.

McDonagh’s own legacy and achievements at the bank could be overshadowed by the media, which will use her departure as another opportunity to raise the issue of bankers’ pay and the effective bonus ban.

Salary caps are a political issue and they remain politically quite toxic. The only time a Treasury Secretary will get rid of them is when he/she thinks no one is looking.

It won’t be anytime soon.

With the cost of living rising, economic uncertainty over energy prices and supply, and more to ensure consumer/voter anger runs high, I see no movement on this issue in the near term.

If you want to understand the dynamics of top executive management in banking and salary caps, you only have to look at Credit Suisse.

The bank has had a string of scandals and financial disasters, from the failed supply chain finance group Greensill Capital to the defunct Archegos family office, embroiling Credit Suisse in a scandal last year.

Add the fact that the relatively new chairman has had to leave for breaching Covid restrictions, while a CEO has had to leave following a spy scandal. This involved some private investigators following an executive.

All in all, banking in Zurich sounds a lot more interesting than you might think.

But aside from that, how much money were all these senior figures at Credit Suisse being paid to make such a mess?

McDonagh joins the bank at a very senior level where she will lead the European operations and join the bank
Board.

No doubt she will play her part in rebuilding the organization after a few bad years.

But as part of an urgently needed restructuring, there has been a massive clearing out at the top of Credit Suisse.

The downside of senior banker salary caps is that you either lose good people to rivals or you don’t attract the right people when jobs become available.

But paying massive salaries is no guarantee that massive abuses won’t occur. The lack of salary caps at Zurich did not provide the right culture, decision making or even compliance with Covid restrictions.

You screwed it up anyway.

Where McDonagh has a very strong point about salary caps is when she says they don’t apply to every bank operating in Ireland. Executives can work at a bank in the IFSC in Dublin and earn many times what they could earn at one of the state-bailout banks. As for bonuses, it seems that effectively blocking bonuses is either a punishment or a lack of trust that bankers will responsibly bestow. If it’s the former, when did the bankers “do their time”?

If the latter is the case, then it is certainly up to bank boards and regulators to ensure responsible lending that is not driven by the short-term hunt for bonuses.

Do we really need laws?

When McDonagh joined Bank of Ireland in October 2017, she had weathered the operations of the financial crisis but needed to recover.

Her legacy is to push through the investment IT and the shift to online banking, restoring the bank’s viability and also evolving the banking culture.

She had not long been in office when she unreservedly apologized on behalf of the bank to an Oireachtas committee for the lender’s handling of the Tracker mortgage scandal.

“Quite simply, I think Bank of Ireland has taken too long to find the right position and not gone far enough to put the customer first,” she said.

Only an outsider new to the job could have said that. It was a refreshing reboot in the banking sector’s response to the crisis.

If the bank’s fine for the Tracker mortgage scandal comes to light, another maverick may be needed in the CEO seat, unless announced before she leaves later this year.

Switching to the internet to keep up with changes in retail banking is one thing, but closing 103 branches on the island of Ireland is another.

It has been a painful transition for many people, particularly in rural communities, as well as for staff.

Back in profitability and heavily dependent on the mortgage market for growth, her successor might find the job a little less interesting.

Winter is really coming.

The expression “Winter is coming” takes on a whole new meaning. The World Bank says we are in for the biggest energy price shock since the 1970s. Previous price increases are likely to be just the beginning.

You know you’re in trouble when the government decides to spend money on advertising that shows ways to reduce our energy use. Slow down. Reduce the temperature setting in the house.

That’s all good stuff, but it could well be a warm-up, less to fight higher prices and more to cut consumption in preparation for rationing.

The energy saving measures recommended by the government should be good for the environment. But if we were serious, we would have done it long ago.

Energy saving measures should also save us money.

It’s always been like that, by the way. Rather, the real driving force behind the government’s campaign is the growing realization that we could run out of power this winter.

Think back to before Russia invaded Ukraine. We’ve already seen spikes in demand and pressure on the power grid.

With the potential for gas supply shortages to Europe due to the deteriorating political situation, it’s hard to see where all this power generation capacity is supposed to come from.

Some economists believe GDP could grow by as much as 8% this year. While this doesn’t fully reflect real economic activity, it does point to a lot of new energy demand.

The Corrib gas field supplies about a third of our needs. The rest comes from Great Britain, much of it from the North Sea or Norway. There will likely be greater demand for these sources from other countries, but the UK will continue to queue ahead of us.

In addition, Ireland can be expected to show solidarity on supplies with our EU partners when supply problems cause real damage on the continent.

Gas buyers in Germany seem to blink at first, looking for ways to pay for Russian gas in rubles.

But that still has a long way to go.

Real crunch time comes at the end of summer.

Time to slow down, turn off the lights and turn down the heat. If it just could be that easy.