‘Sentiment towards Ireland is very strong now,’ says NTMA chief Frank O’Connor

Frank O’Connor may be just two years into the role of chief executive of the National Treasury Management Agency (NTMA), but he is already on his third Minister for Finance.

The latest, Jack Chambers, is intent on keeping him busy for the rest of the year, as he plans to hand over an initial €10 billion for the NTMA to manage in two new sovereign wealth funds – the Future Ireland Fund (FIF) and Infrastructure, Climate and Nature Fund (ICNF) – with the aim of capturing and investing windfall tax revenues.

The funds were originally announced by Chambers’s predecessor, Michael McGrath, last October.

The Government estimates that the bigger of the two funds, the FIF, being set up to pay for additional healthcare and pension costs associated with a growing and ageing population from 2041, will grow to €100 billion in size by 2035.

The ICNF, seen growing to €14 billion by the end of this decade, is designed to ensure that capital spending on infrastructure and climate-action projects is maintained in the event of a future economic shock.

“The new funds have really resonated with international investors,” says O’Connor in an interview in the boardroom of the NTMA’s newish headquarters next door to the Central Bank of Ireland in Dublin’s north docklands. “They address what should be done with excess corporate tax during good times, which has been a talking point for investors [in Irish bonds] for some time.”

O’Connor plans to advertise for a director to oversee the new business unit – to be known as Future Ireland Funds – by the end of this month. He signalled last week at the unveiling of the NTMA’s annual report that the agency plans to temporarily invest the initial money it receives in low-risk assets like bonds as it goes about setting up an investment committee to work out a longer-term strategy.

The new mandate will see the NTMA, founded in 1990 to manage Government funding and borrowings after the debt crisis in the 1980s, grow to six business units, also including the State Claims Agency (SCA) that manages personal injury claims on behalf of the State, the Ireland Strategic Investment Fund (ISIF), National Development Finance Agency (NDFA) and the NewEra advisory body to the Government on State-owned companies.

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That excludes three other bodies – the National Asset Management Agency (Nama), Strategic Banking Corporation of Ireland (SBCI) and Home Building Finance Ireland (HBFI) – that fall under the aegis of the NTMA. All told, some 800 people are employed by the existing agencies.

O’Connor rejects the notion that the NTMA has become something of a dumping ground over the years for tasks for which successive governments can’t find an alternative home.

“What I think is important is that any mandates we get are in the right areas and are core to our strengths. If you look at any mandate we have, it essentially involves balance sheet management. Take the State Claims Agency. It has estimated outstanding claims of over €5 billion,” the 55-year-old says.

“We also have a core engine around things like IT (information technology) and HR (human resources). So, when the State needed to set up Nama 15 years ago at short notice, for example, you had an obvious vehicle that you could place it into.”

The glass-panelled escalators at the back of the foyer of the NTMA’s headquarters by the Liffey offer a clear view of the agency’s staff canteen, where a video of O’Connor presenting the NTMA’s annual report was on a loop on a large screen.

Of the four CEOs that have led the NTMA since its inception – Michael Somers, the late John Corrigan, and Conor O’Kelly – O’Connor is second to Corrigan as the least enamoured of the profile that comes with the job, according to those who have worked for them all.

When asked what type of management style he has, O’Connor, a tall, imposing, but mild mannered, figure, says, “I’d let others answer that question”.

The Kildare native joined AIB’s capital markets business in 1990 after graduating with a business studies degree from Trinity College Dublin. He studied accounting at night and qualified in 1993, though immediately afterwards he ventured out of the finance unit and into the bank’s dealing room.

O’Connor would end up on the gilt desk, where Irish Government bonds were traded, and became the head of trading in the late 1990s at AIB’s then primary dealer bond unit – where it was an official dealer in Irish Government debt that offered quotes to buyers and sellers of bonds.

He moved to Poland in 2004 to head the wholesale treasury team of AIB’s then local subsidiary there, Bank Zachodni WBK.

“The benefit for me in that job was that you were now the one going to the assets and liabilities management committee and sitting in to give updates to the management board,” he says of his time there. “Whereas in Dublin there were lots of senior managers, so you wouldn’t have gotten that type of exposure as early.”

He also picked up the Polish language while there.

O’Connor was already planning to return to AIB in Dublin in early 2010 when the Polish unit was put up for sale as the bank scrambled to raise capital to fill an emerging hole in its balance sheet as bad loans soared following the property crash. (The creation of Nama in 2009 to take over toxic commercial property loans from Irish banks and building societies crystallised much of those losses.)

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He would end up being tapped by Nama in March 2010 – weeks before the agency took over the first batches of loans – to head its treasury function. This essentially put him in charge of the €31.7 billion of Government bonds that Nama handed over to the banks to pay for loans that originally were worth €74.4 billion.

The country would end up being locked out of international bond markets six months later – and subsequently was forced to resort to a €67.5 billion international rescue programme led by the International Monetary Fund (IMF), EU and European Central Bank (ECB) – as the cost to taxpayers of bailing out the banks became too much to handle.

The NTMA brought O’Connor over to its core funding and debt management unit in early 2012 as it continued to engage with international investors.

Moody’s, one of the world’s leading credit ratings agencies, had downgraded Ireland’s creditworthiness to ‘junk’ – or sub-investment – grade in a humiliating move in the middle of 2011.

“I joined as deputy director [of the unit]. There was a body of work to be done,” he says, with understatement.

Keeping in contact with investors paid off, with the NTMA managing to get a €5.2 billion bond sale away in July 2012, a few weeks after dipping its toes into the short-term debt markets by selling €500 million of three-month treasury bills. While priced to carry an interest rate of almost 6 per cent – or nearly twice the average cost of money being provided under Ireland’s troika bailout programme – it was an important signal halfway through the State’s three-year bailout.

“It was important to demonstrate that we had market access before we came to the end of the troika programme, initially in the short-term market,” he says. “The opportunity to sell longer-term bonds came sooner than we’d expected. But once we got the conversations going with investors about how Ireland was delivering on its programme targets and managed to sell short-term bills, then there was an appetite for longer term, five- or seven-year bonds.”

The timing couldn’t have been sweeter. The bond sale took place on the very day that then ECB president Mario Draghi make his famous “whatever it takes to preserve the euro” speech, which is credited with turning the tide on the euro zone debt crisis.

O’Connor became head of the funding and debt management division in 2014, taking over the reins from Oliver Whelan. Moody’s still had a junk rating on the State at the time.

Following a number of upgrades from the main ratings agencies over the past decade, as the state of the banks and the country’s finances improved, Ireland is back in the AA club at Standard & Poor’s, Fitch and Moody’s, the highest standing it has had with all three since 2009.

Will it ever claw its way back to its pre-crisis, triple-A standing?

“It could do. But the bar is higher after the global financial crisis,” O’Connor says.

Ireland’s €221 billion general Government debt pile at the end of last year may only have been 43 per cent of gross domestic product (GDP), which is only slightly above the median for AAA-rated countries and well down from its crisis-era peak of 123 per cent. However, looking at the burden relative to gross national income-star, a better gauge of the underlying domestic economy, the ratio stood at 76 per cent, albeit down from 166 per cent a decade earlier.

“I think you would need to see further improvement on that front, for a start,” he said. “But if you read the ratings agencies reports in detail, they highlight that we are an open economy. This, of course, has been advantageous, especially as our initial recovery from the financial crisis was export led. But they would give the openness a higher risk score.”

Still, the two new sovereign funds would help the case. But the markets have been ahead of the ratings agencies since the outset of the 2008 crash.

Ireland’s 10-year bonds are currently trading at a little over 2.9 per cent. While that’s higher than the 2.5 per cent rate attached to German bonds – seen as the benchmark for euro zone debt – similar notes of the so-called “semi-core” group that the NTMA could only dream of joining a decade ago, including Belgium, Austria and France, are all currently above 3 per cent.

“People would say we’re nearly core now,” says O’Connor. “Sentiment towards Ireland is very strong now. Investors look at Ireland as a very solid credit.”

For the time being, bond investors are largely ignoring how the Government has breached the spending rule – which is supposed to limit Exchequer spending growth to 5 per cent a year, unless offset by new tax measures – every year since it set it was set in 2021. The €8.3 billion budgetary package unveiled by Chambers on Tuesday increases spending by 6.9 per cent.

They are also much more relaxed, according to O’Connor, about infrastructure gaps in the economy than multinationals looking to invest in the State. Earlier this week, IDA Ireland said that the ongoing shortage of housing in the Republic was the single biggest impediment to foreign direct investment (FDI) as it vies with other locations now that the global economy has “passed peak globalisation”.

The agency has raised about €7 billion in each of the past two years on the long-term bond markets, well below the average of more than €18 billion a year between 2017 and 2021. The NTMA has raised €5 billion in benchmark bonds at a weighted average market interest rate – or yield – of 2.75 per cent so far this year. Its official full-year target is to raise between €6 billion and €10 billion this year.

While some €29 billion of debt is due to be refinanced over the next two years, O’Connor signalled that issuance next year will at the “lower end” of the range over the past seven years. The NTMA was sitting on €27 billion of cash at the end of 2023.

“We don’t see the debt maturities over the next two years as being particularly elevated, particularly given the cash we have,” he says.

CV

Name: Frank O’Connor

Job: Chief executive of the National Treasury Management Agency

Lives: Co Kildare

Family: Married with children

Something you might expect: Has read the autobiography of Alexander Hamilton, founder of the US financial system and its first Secretary of the Treasury

Something that might surprise: He speaks Polish