At the height of the Irish financial crisis in early 2011, when bad loans and bank rescue bills were soaring and regulators and officials overseeing the Republic’s international bailout were making all sorts of demands, Bernard Byrne, AIB’s then-chief financial officer, had to keep his staff motivated.
“I’d say to people, ‘I know it’s incredibly dark right now. I know you’re working harder than you’ve ever worked before. I know there’s no recognition of that and it’s very depressing. And I know it’s really, really hard to see our way forward. But just remember: tomorrow will be worse,’” Byrne, who would go on to become AIB chief executive, recalled in an interview this week.
“Funnily, that gallows humour seemed to work.”
There was no time, however, for black humour in the darkest days of Byrne’s current role at the helm of Davy, having been installed initially as interim chief executive in March 2021 as the State’s largest stockbroking firm was convulsed by a Central Bank fine over a bond deal from 2014.
The scandal – which came almost two years after Byrne joined as head of Davy’s capital markets unit – would result in the exit of the firm’s most senior figures and the company being put up for sale.
‘I believe there are great opportunities for the business, but it’s for someone who wants to be with it for another five to seven years and can hit the ground running’
— Bernard Byrne
On Tuesday, Byrne (55) announced he plans to leave Davy in 2024, two years after the completion of the sale to Bank of Ireland, where Myles O’Grady, a former report of his at AIB, is now in charge.
“The last 14 years, to be honest, have been pretty intense,” he says. “So, my plan at the moment is to have no plan. It’s to take a break and think about what I might like to do.”
“I believe there are great opportunities for the business, but it’s for someone who wants to be with it for another five to seven years and can hit the ground running. In order to get the transition right, you have to announce it now.”
Byrne’s foray into the world of stockbroking follows a familiar career pattern, where the executive has taken on roles seemingly with his eyes wide open only to face bigger challenges than anticipated.
An accountant by profession – taken on as an apprentice straight out of school in 1988 by Craig Gardner, now PwC, before working for a period with ESB International in the mid-1990s – Byrne joined businessman Joe Moran’s IWP International listed household products and cosmetics group in 1998 as finance director.
At that stage, the company had just come off a debt-fuelled binge on almost 30 acquisitions over the previous decade that culminated with the purchase of Jeyes Group, the company behind Jeyes Fluid and Bloo toilet cleaner.
“When I signed up that May, the company had a market cap of £825 million. But by the time I’d actually joined in September, it had more than halved – and by Christmas it was down to £190 million.”
It would be a massive restructuring job from day one. Byrne mounted a failed management buyout bid for the business in 2003. He quit shortly after it was turned down by the board. IWP would be taken over by US investment firm Strategic Value Partners three years later in a debt-for-equity swap deal that virtually wiped out shareholders.
Byrne rejoined ESB in 2003, this time as group finance and commercial director of the parent ship. The proposition there was to help gear the State-owned power group for an initial public offering (IPO), through a major overhaul involving the cutting of thousands of jobs and an investment in upgrading its network. A flotation had long fallen off the agenda by the time he got a call from a headhunter in late 2009 about the AIB chief financial officer role.
He would have to preside in his first year with the bank over the reporting of a record €10.2 billion net loss for 2010. AIB’s bailout bill would spiral to €20.8 billion by the middle of 2011, by which stage Byrne was head of its Irish retail and business banking unit.
Byrne would become group CEO in 2015, after David Duffy quit to take over Clydesdale and Yorkshire Bank, now Virgin Money, amid delays in an AIB IPO and ongoing Irish banker pay caps.
Byrne was in charge when the Government finally sold a 28.8 per cent stake in AIB in June 2017 for €3.4 billion in an IPO – dubbed Project Viking – that was two years in the planning.
‘The public aspect of the job was never something I sought out. But it was a necessary feature of the job. Fundamentally, I was much more driven by proving, by doing, rather than talking about things’
— Bernard Byrne, on his time as CEO of AIB
He would openly press the Government in an appearance before the Oireachtas finance committee later that year to sell more shares, warning markets could turn for the worse. A market wobble in late 2018, followed by the pandemic and developments in Irish banking – not least Ulster Bank and KBC Bank Ireland deciding to quit and sell most of their loans to the remaining players – meant it would be 2022 before AIB share sales would recommence. The State stake currently stands at just under 41 per cent.
Byrne decided in late 2018 to quit AIB to lead Davy’s capital markets unit. There was a view in banking circles at the time that aside from executive pay restrictions, Byrne had grown tired of the very public element of the role, dealing with media, politicians and other stakeholders.
“The public aspect of the job was never something I sought out. But it was a necessary feature of the job,” he says. “Fundamentally, I was much more driven by proving, by doing, rather than talking about things.”
Byrne was CEO at the height of public and political uproar over the tracker mortgage scandal. Although he was not around when banks pulled the cheap products in 2008 and AIB subsequently denied thousands of customers a right to a tracker rate, he was there for the clean-up.
In fining AIB and its EBS unit almost €97 million last year for their roles in the industry-wide debacle, the Central Bank of Ireland said the group had wrongfully excluded customers from compensation for an extended period and continued to pursue legal cases against some customers in arrears that were affected by the fiasco, even though these should have been paused.
[ Fintan O'Toole: Deception by the Davy 16 was based on pure greedOpens in new window ]
“It’d be hard to not have regrets about how the whole tracker situation played out,” he says, adding that, with the benefit of hindsight, many things would have been handled differently.
However, he notes AIB launched a large taskforce in August 2015 to look into the tracker issue, months before the Central Bank ordered the industry to trawl through its books. This, and the fact that AIB “engaged purposefully and constructively” with the regulatory enforcement investigation, were described as mitigating factors when the Central Bank totted up its penalty.
The opportunity to take on the role as head of capital markets at Davy, succeeding Kyran McLaughlin, for decades one of the most influential behind-the-scenes figures in Irish corporate life advising CEOs on deals, came “out of the blue” in 2018, according to Byrne. It also involved the deputy CEO position at the firm.
“It was also clear – even though there was nothing in writing – that there was an opportunity at some stage to take over as CEO, and there was also going to be a requirement at some point for a change in ownership, whether by a new [management-led] buyout or somebody coming in and buying it,” he says.
While Davy’s then management team led a €316 million buyout of the business from Bank of Ireland in 2006, by the time Byrne joined, former staff that had left in the interim owned about a third of the business. The firm had also been subject of sale speculation for years.
“All those elements actually played out, if in a very different way, and in a much more accelerated timescale than I would have thought,” he says.
There was industry speculation when Byrne joined Davy that there was an understanding that he would be a natural CEO if anything that came out of an ongoing Central Bank investigation into the 2014 bond trade would lead to changes at the top. However, he insists this was not the case.
“While I was aware of the investigation at the time, there was no such link in my mind or understanding that anything at all was going to come from that, other than that the investigation would finish,” he says.
The Central Bank sent shockwaves through Dublin financial circles and beyond on March 2nd, 2021, as it revealed that it had fined Davy €4.1 million and reprimanded it for breaching market rules by failing to identify whether a conflict of interest existed as 16 staff bought junior bonds in Anglo Irish Bank, in liquidation at the time, from a client, Northern Ireland developer Patrick Kearney, without disclosing that they were the buyers.
The regulator also found that Davy had kept its own compliance officials in the dark on the deal.
Byrne concedes the firm was caught off-guard by the scale of the political, media and public reaction to the scandal. It was quickly forced into actions, as he put it, “that probably weren’t in contemplation beforehand”.
Then CEO Brian McKiernan, deputy chairman Kyran McLaughlin and head of bonds Barry Nangle – who were remaining senior figures among the Davy 16 – resigned four days later and Byrne was installed as interim CEO.
Byrne’s first six days in the job saw the National Treasury Management Agency (NTMA) dump Davy as primary dealer in Government bonds, the firm close down its bond desk, put itself on the market, and commit to hiring a firm – later confirmed as Alveraz & Marsal – to carry out a forensic review of staff trading over the previous seven years as well as the firm’s compliance, controls and governance.
While the controversial bond trade occurred years before Byrne joined Davy, he was on the board for almost two years before it agreed to a settlement with the Central Bank. Davy was found wanting in its initial approach to the investigation and had, as deputy Central Bank governor Derville Rowland would tell the Oireachtas finance committee, “very able legal advisers” who sought to “curtail” requests from her team.
What does Byrne now make of the role of the board, of which he was a member? “Obviously Covid struck during the process, so that slowed things down. But, ultimately, Davy accepted being sanctioned, paid the fine and agreed to the prescribed contraventions,” he says, adding that he openly said when he took charge that the firm had “got it wrong”.
“That means we must have gotten things wrong as the process went on. But I would say that the Davy of March 2021 was already quite a different place to October 2014 [when the bond deal occurred]. A lot had changed during that period. And the Davy of [today] is even very different to the Davy of March 2021.”
‘It was very clear to me that the separation between ownership, governance and management had to be explicit going forward’
— Bernard Byrne, on selling Davy
Byrne says the decision to put the company up for sale was a “collective one” between shareholders – including five former senior Davy executives who were involved in the bond trade and owned about a third of the business between them – and the board.
“It was very clear to me that the separation between ownership, governance and management had to be explicit going forward.”
Byrne said that “there was a very intensive period” of engaging with clients, resulting in the firm suffering “almost nothing” by way of customers pulling money out of the company’s wealth business.
Davy agreed in July to sell its assets for as much as almost €600 million in three deals, with Bank of Ireland acquiring the core capital markets and wealth management businesses for an enterprise value of €427 million.
Davy’s key wealth unit’s assets under management stood at about €16 billion by the time it was put up for sale. It has since increased to close to €22 billion, including about €2 billion transferred from Bank of Ireland earlier this year as about 2,000 high-net-worth clients moved across.
The unit has propped up profits in the group in recent years, amid an ongoing downturn in capital markets activity, including fundraisings and IPOs, against a backdrop of concerns about the global economy and interest rates. The exit of CRH, previously the biggest company on Dublin’s Iseq index, from the Irish market for the bright lights of New York, and the imminent departures of Smurfit Kappa and Flutter Entertainment, haven’t helped.
A recent voluntary redundancy programme in the capital markets division has resulted in the exits of about 12 staff in Dublin and the UK. However, overall employment has grown by about 200 since March 2021 to 900.
Byrne says that the capital markets business “is in a state of transition”. However, he sees a massive opportunity for firm’s fledgling ESG (environmental, social and governance) consultancy unit to play in advising and getting involved in deals to fund Ireland’s transition to net zero carbon emissions.
The firm estimated in a recent report that Irish households, businesses and the Government face spending €150 billion by 2030 alone on efforts to meet climate-action targets.
“We’ve been positioning for this. I can’t say personally when it’s going to kick off,” he says. “But this is going to be the single biggest investment theme ever.”
CV
Name: Bernard Byrne
Job: Chief executive of Davy
Family: Married with three children
Lives: Rathfarnham, Dublin 14
Hobbies: Golf, tennis, padel
Something you would expect: “I am a bit of a foodie, and I do like to cook, it helps me relax”
Something that might surprise: “I have a very eclectic Spotify playlist, with apparently over 140 genres listened to in 2023″
