Francesca McDonagh heads to Credit Suisse

This is an audio transcript of the FT News Briefing podcast episode: Francesca McDonagh heads to Credit Suisse

Marc Filippino
Good morning from the Financial Times. Today is Monday, May 16th, and this is your FT News Briefing.

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Russia’s war in Ukraine is taking its toll on Europe’s economy. It’s also prompted Sweden and Finland to make the historic decision to join Nato. Not all Nato members are rolling out the welcome mat, though. Plus, one of Ireland’s top bankers is heading to Credit Suisse to help set things right. We’ll look at why Francesca McDonagh is making the move.

Owen Walker
You could say she’s taking danger money here. I mean, my rough estimation, she could look to at least double her pay at Credit Suisse.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The energy crisis triggered by Russia’s invasion of Ukraine is taking a toll on the European economy. Officials say that the EU and euro area are forecast to expand by a mere 2.7 per cent this year. That’s well below the previous 4 per cent expectation. Next year’s growth is expected to be even lower. On top of the slowing growth, inflation is expected to surge above 6 per cent this year. Households are facing higher food prices as well as high energy prices. In response to high inflation, the European Central Bank has signalled it may raise interest rates this summer. It would be the ECB’s first rate hike in more than a decade.

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Yesterday, Sweden broke a 200-year policy of military neutrality. The Nordic country and its neighbour Finland both announced they’ll join Nato. This would be one of the most far-reaching consequences of Russia’s invasion of Ukraine. But the move is opposed by another Nato member. The FT’s Laura Pitel explains why Turkey’s president Recep Tayyip Erdoğan doesn’t want Sweden and Finland to join.

Laura Pitel
So, he kind of set a cat among the pigeons on Friday by coming out publicly and saying that he couldn’t agree positively on these two countries’ Nato membership. And the reason that he gave is that he sees them as kind of guest houses, to use his word, for terrorists. And by that, he was referring to members of the Kurdistan Workers’ party, the PKK, which is an armed militant group that’s been fighting the Turkish state in a very bloody war for decades now. It’s classified as a terrorist organisation by Turkey, by the EU, by the US. And there’s a big Kurdish community in Sweden in particular. Turkey accuses Sweden of not doing enough to crack down on PKK financing, recruitment in the country. And they also get annoyed when Swedish politicians meet with representatives of an offshoot of the PKK that’s active in Syria.

Marc Filippino
So what does this mean? Does this, does Erdoğan’s view jeopardise Sweden and Finland’s ability to join Nato?

Laura Pitel
Well, initially it sounded like that. But I have to say that since his initial comments, some of his foot soldiers have spent quite a serious amount of time carefully qualifying his remarks. They’ve said that they’re not closing the door to Sweden, Finland’s Nato membership, merely that they’re raising their concerns. I mean, their argument is that Nato is an alliance and the allies should show each other solidarity. And that harbouring a group that goes around killing Turkish civilians and soldiers is not an act of solidarity. Turkish Foreign Minister Mevlüt Çavuşoğlu also suggested he wants Sweden and Finland to lift an arms embargo that was put in place in Turkey in 2019 in retaliation for its invasion of north-east Syria that year. So I think, it seems to me, that’s a bit of a bargaining position and the foreign minister denied explicitly that it was, their terms, getting leverage. Nato officials, including Nato’s secretary-general Jens Stoltenberg, they were kind of playing down the significance of this rift on this issue. Everybody seems to be quite confident that they’ll get Turkey over the line, and they’ll get Sweden and Finland over the line.

Marc Filippino
Laura Pitel is the FT’s turkey correspondent. She’s based in Ankara.

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Credit Suisse recently cleared out its top ranks to try and move beyond a string of financial fiascos. Among the new faces it’s bringing in is Francesca McDonagh. She’s the CEO of the Bank of Ireland. But later this year, she’ll be the Swiss lender’s head of Europe, Middle East and Africa. To talk about why she’s jumping to a lower position at a more troubled bank, I’m joined by our Europe banking correspondent, Owen Walker. Hey, Owen.

Owen Walker
Hey, how’s it going? Thanks for having me on today.

Marc Filippino
Yeah, no problem. So Owen, why do you think Credit Suisse brought in McDonagh?

Owen Walker
Well, I mean, first, she’s a very impressive banker. She’s spent more than two decades at HSBC doing a variety of roles all around the world. She spent the last nearly five years at the Bank of Ireland, which is now its largest by market cap. And Credit Suisse is looking for competent executives with, you know, global view. She’s on the market, and she’s the sort of person they probably want to be bringing in to help steady the ship.

Marc Filippino
Yeah, she’s got this really interesting background, you know, very self-made. Can you talk a bit about what stands out about her life and her life as a banker?

Owen Walker
So she was raised in south London. Her mother was a refugee from Egypt. And she talks a lot about this background that, you know, neither of her parents had been to university, but decided that she wanted to go to Oxford university. When she applied, she was actually turned down by three different colleges. Rather than just sort of accept it, she called all of them up and basically said, you know, you’ve made a mistake. There must be an administrative error.

Marc Filippino
Did she really? (laughs)

Owen Walker
Yeah, she a, I’m destined to come. Two of the colleges sort of said there’s no mistake. Thanks, but no thanks. But one said, well look, you’ve showed a bit of enthusiasm here. Why don’t you come along and have another interview? She did. She kind of sailed through, she convinced them to let her join, and she did. And then she went to Oxford and then her career kind of took off after that one.

Marc Filippino
Now you mentioned before, when she agreed to come to Credit Suisse, that McDonagh was on the market, so looking around. And would that be because Ireland’s banking system has these pay caps, basically a limit to how much executives could be paid?

Owen Walker
Yeah. I mean, she has talked about this very candidly. There is a pay cap within Ireland on senior bankers of half a million euros a year. This all goes back to the bailouts around the financial crisis. There was a lot of banker bashing, a lot of blaming of the bankers at the time, and they decided that they should restrict the amount of pay. Now, that was fine for, you know, five, ten years or so. Though, as the economy’s recovered, there is now a real sense of alarm, really, certainly in the senior banking circles in Dublin that this is leading to a brain drain because the best bankers don’t want to be restricted in their pay. They want to be paid compared to their peers around the rest of the world. So McDonagh will be the fifth senior banker to leave over the past four years. And anyone you speak to in the market says it’s all down to these pay restrictions.

Marc Filippino
So Owen, I don’t know if we know how much McDonagh is gonna make at Credit Suisse. But some might say whatever it is, it’s not enough considering how many fiascos Credit Suisse has been involved in over the past, you know, several years. What does McDonagh need to do to help right the ship at Credit Suisse and help the bank avoid any more missteps?

Owen Walker
Sure, I mean, you could say she’s taking danger money here. I mean, she had secured an exemption on the pay cap in Ireland, so she earns just shy of €1,000,000 a year. And my rough estimation, she could look to at least double her pay at Credit Suisse. Now, from the Irish perspective, they’re losing one of their hotshot banking chief executives to go and work in a secondary executive role at Credit Suisse, which, you know, has very much become the basket case of Europe’s banking industry. But I suppose from McDonagh’s perspective, Credit Suisse is undergoing this year, they keep telling us it’s a transition year. They’re getting out a lot of the problems they’ve had and trying to get over them this year. It’s going to be another rocky one. And if you speak to a lot of the executives who have joined over the past year, they talk very much about this resurgence, you know, they’re at Credit Suisse for the next 5 to 10 years. They really think that they could be the agents of that change. So I can see the appeal from McDonagh to do that. But as we’ve seen with Credit Suisse’s recent past, the amount of times they’ve kind of looked to have a clean slate and move on, you can count on both hands.

Marc Filippino
Owen Walker is our Europe banking correspondent. Thanks so much, Owen.

Owen Walker
Thanks very much.

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Marc Filippino
Before we go, we don’t know how much paid time off Credit Suisse is going to give Francesca McDonagh. But Goldman Sachs has just updated its vacation policy. Perhaps because of the war for talent on Wall Street right now. Goldman’s most senior staff can now take as much vacation as they want to, you know, rest and recharge. Junior bankers, they still have a fixed number of vacation days. This limitless leave policy is known among tech companies, but not so much in finance. One criticism of unlimited leave is that it can actually lead staff to take even fewer days off.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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