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New Bank of Ireland CEO brings IT, M&A experience

Bank of Ireland's choice of new CEO suggests it is prioritizing its U.K. operations and IT upgrade program, according to analysts.

Francesca McDonagh, head of the U.K. and Europe retail banking and wealth management divisions of HSBC Holdings Plc, will take over from Richie Boucher in October. The 42-year-old, who has Irish grandparents but is herself British, has been at HSBC for 20 years.

This background will be "invaluable" to Bank of Ireland as it looks to extract full potential from the franchise it has developed in the U.K., according to Investec Ireland analyst Owen Callan. Bank of Ireland has a large retail banking venture with the U.K. Post Office. The London-based Bank of Ireland (UK) Plc division has about €30 billion in assets, compared to about €123 billion for the Bank of Ireland group as a whole.

The future strategy could include merger and acquisition opportunities in the U.K., Callan said in an interview.

McDonagh has prior experience in acquisitions; her career at HSBC has included overseeing the acquisition of Lloyds Bank in the United Arab Emirates when she was the bank's regional head of retail banking and wealth management in the Middle East and North Africa.

IT expertise

But both Callan and Diarmaid Sheridan, an analyst at stockbroker Davy Group, said Bank of Ireland would probably need to wait until certain technology projects are fully implemented before embarking on M&A. Boucher said earlier this year that the bank was investing as much as €1 billion in IT over the coming four years, which would aid its expansion plans.

Perhaps not accidentally, this is an area in which McDonagh is experienced.

"She oversaw the re-platforming of HSBC's digital offering during her time there," said Stephen Hall, a Dublin-based investment analyst at Cantor Fitzgerald. This experience, he said, was "likely her key selling point" over other well-qualified candidates, he said.

Hall said the bank is aiming to increase operational efficiency and ultimately bring its cost-to-income ratio toward 50% over the medium term. At the end of 2016, the ratio stood at over 63%, according to S&P Global Market Intelligence data.

In the meantime, Bank of Ireland will likely be focused on improving returns in the U.K. Its U.K. retail business represents 40% of loans but just 14% of underlying profit before tax, excluding additional gains, Sheridan noted. Having U.K. experience is, therefore, a positive, he said.

Callan said McDonagh is "a very strong appointment," saying her significant experience in private banking and wealth management would play well into Bank of Ireland's continued attempts to build on its own offerings there.

Darren McKinley, from the Dublin-based asset manager Merrion Investment Managers, also said he views her retail and IT background as positive.