Bernard Byrne, Chartered Accountant and Chief Executive of AIB, talks to Accountancy Ireland about life at the helm of one of the country’s most scrutinised institutions.
By May 2010, Allied Irish Banks (AIB) was an institution in turmoil. It had been subject to two rounds of recapitalisation by the Irish State to the tune of €5.5 billion. CEO Eugene Sheehy, Finance Director John O’Donnell and Group Chairman Dermot Gleeson had resigned. The bank proposed to enter NAMA and in March 2010, it posted a loss of €2.3 billion for 2009. To enter the fray at this point, particularly as Group Chief Financial Officer, would be a bold move. The institution was by then part of the national economic agenda and the focus of much of the country’s ire.
Enter Bernard Byrne, a PwC-trained Chartered Accountant. Having worked in ESB International and IWP International, Bernard came to AIB free of baggage – but his decision to join the bank wasn't straightforward. “I must confess, the first time I got the call I thought ‘Are you mad?’ It was December 2009 so things were looking pretty rocky for AIB. But I thought about it and came to the conclusion that it could be interesting,” he said.
Bernard had two central motivations at the time. One was the “big personal challenge” while the second was the potential to be “part of the solution”. He joined the bank in May 2010 and entered a “massively intense” environment where things were “getting worse, not better”.
“It looked like a €7.4 billion capital requirement was still true in May but by the time it got to December, it had moved out to over €10 billion,” he said. “And by the time you eventually finished next year, it had moved out to almost €20 billion, which included the merger of the Anglo deposit business and the EBS franchise business as well.”
Around this time, AIB sold a 22.5% stake in US lender M&T bank for roughly €1.5 billion and offloaded a 70% stake in Poland's Bank Zachodni WBK for €3.1 billion. The bank also disposed of the Goodbody Stockbrokers business for about €24 million.
While the bank’s numbers were deteriorating, Bernard stuck to his core philosophy – don't panic and be optimistic. “In any of these situations, I take the view that you can always make things better. The key thing we were trying to do was to get to the bottom,” he said. “And in the middle of all this, it became clear to me that there was a viable business. Once you knew that, the question is: what capital structure would support it and who was going to incur the loss of that capital structure.”
Building trust
Fast-forward almost six years and Bernard’s assumption holds true. Since his appointment as Chief Executive in May 2015, when he succeeded David Duffy, AIB reported profit before tax of €1.2 billion at 30 June 2015. Last December, it returned €1.7 billion of capital to the Irish State and it also reported a “significant reduction” in impaired loans, down from €22.2 billion in December 2014 to €18 billion in June 2015.
While a turnaround is under way, there were lengthy periods of slow progress, thorny relations and tough decisions in the early days of the economic crash.
He described relations with Government representatives and the Financial Regulator as “very challenged in 2010”. Yet, Bernard was intent on establishing trust “by doing”, even when progress was minute. And he believes that his clean sheet as a non-banker helped in this regard.
“The benefit I maybe had over many others was, I didn’t have baggage. I didn't have any ownership of some legacy balance sheet, trying to defend it. It didn’t bother me,” he said. “That period from 2010-12, where things seemed to be moving slowly, was all about building... the business is now at the point where it’s starting to move forward very quickly as a result of a series of things that happened over that time period, which positioned AIB to move forward.”
Between his role as Group Chief Financial Officer and Chief Executive Officer, Bernard also headed up the Retail, Corporate and Business Banking division in AIB. In that role, he oversaw the implementaion of a new operating model which included significant branch closures, and invested heavily in technology while taking €450 million in cost out of the business. This was an “incredibly difficult” period for him as invariably, the employee took a lot of the pain. “We had to do some some pretty brutal changes at the beginning but it was done in the context of where we saw the business getting to,” he said. “We spent a lot of time out with staff saying: ‘There’s going to be a lot less of you. A lot of you are going to be in new positions, and you’re going to have to do things very differently. But the bank will emerge successfully’.
“That was a real hard sell but we set landmarks every six months... and if you lived up to that, then staff started to believe that your next statement would also be true,” he added.
A brighter future
Having used his skills as a Chartered Accountant to put AIB’s business on a firm footing, 2016 could see the bank return to the market. Bernard sees this as a “helpful” development for a variety of reasons. First, it shows that AIB’s transformation is complete and third party investors are willing to buy into that transformation. And secondly, it would result in a meaningful amount of capital being returned to the State.
“We’ve paid that first tranche (€1.7 billion) of capital back, and we’ll have another piece in terms of the convertible debt instrument going back in the summer, which is €1.6 billion,” he said. “If you get an IPO away, maybe there’s another €3 billion going back and you’re then starting to make meaningful inroads into that capital piece.”
Bernard also expects significant progress on the mortgage arrears front in the next two to three years. While home repossessions have been a necessary evil, Bernard insists that fairness follows a forensic appraisal of the financial facts.
“We have a wide range of solutions in place for customers and we must base every decision on affordability,” he said. “For people who are in really difficult situations, they need help. There are people who are are not engaging and they need to be addressed.
“The sad thing about a mortgage market secured on property is the way the market works. A bank lends you money to buy something but if you can't pay it back, you didn’t buy the property yourself,” he added. “The market has to work that way, or else mortgage lending can’t be cheap.”
Past challenges
Bernard was one of the front-runners in the race to become Chief Executive of AIB last year. With David Duffy’s resignation coming “earlier than I (Bernard) would have expected”, he threw his hat in the ring and was duly selected. He has since demonstrated a steady stewardship and remains intent on “rehabilitating the reputation of the bank” during his tenure.
But AIB isn’t the first challenging role he faced. Bernard counted Waterford Crystal, the Smith Group and Fitzwilton among his clients as an auditor with PwC. Around this time, Waterford Crystal was rocked by the revelation of accounting errors, which overvalued the inventories at three Waterford plants by up to $33 million. He also worked on a project to prepare ESB for privatisation under the direction of then minister, Mary O’Rourke, immeditaly prior to his move to AIB.
A more unusual experience came during Bernard’s time at IWP International, then a darling of the stock exchange. Between accepting the position and the day he joined the company, the firm’s market cap had halved. Undeterred, Bernard immediately set about improving the company’s fortunes. “It was a great opportunity, it just needed a lot of work. They made around 29 acquisitions in the previous decade... some needed to be sold, some needed to be consolidated, and debt needed to be paid down. It was an incredible experience at the time.”
Bernard eventually rose to the position of Deputy Chief Executive and soon realised that he and the Chief Executive had different views about the future for the business. “We just had a different view so I put an offer on the table. That offer was rejected and I felt it was full value, but it was a great way to exit because all the existing shareholders probably felt like it was a reasonable offer,” he said. “I offered 33c at the time... two years later it was sold for 3c but it was a big leverage play because actually, the value of the equity was relatively modest.”
Guiding principles
While he acknowledges that he has been fortunate to work for “really, really great people who all had slightly different approaches”, he has learned some simple but effective truths during his career. “First, there is no single answer so don’t ever think there’s only one way of solving a problem. Secondly, you need to be lucky. Now, you need to put yourself in the way of opportunity, but you also need to take those opportunities when they arise. And lastly, don’t panic. Panic achieves nothing and only clouds your judgement. No matter how difficult a position you’re in, don’t panic and see the opportunities that exist as a result of the situation you’re in. Then, try to work your way through it.”
With that philosophy, it’s easy to see why AIB saw – and continues to see – Bernard as the man for the job.