Analysts question Bank of Queensland’s path after parting ways with its CEO

Bank of Queensland’s removal of chief George Frazis has analysts wondering whether it can meet its return and other targets.

Bank of Queensland’s abrupt removal of chief executive George Frazis this week has analysts questioning whether the bank will be able to meet its return and other targets, and whether it reflects an attractive investment.

The Brisbane-based lender parted ways with Mr Frazis on Monday, with immediate effect, citing a change in focus as the economy slowed and it sought to recalibrate its growth and risk management settings.

BOQ chairman Patrick Allaway became executive chairman as a search for the bank’s next CEO got under way. The stock closed unchanged at $7.14 on Tuesday, after falling to a seven-week low following the leadership announcement on Monday.

UBS analyst John Storey said the sudden exit of Mr Frazis raised questions around the investment case and earnings outlook for BOQ in the short to medium term.

“This news is a potential distraction, in our opinion, and comes at an inopportune time, especially with the ANZ/Suncorp Bank deal in the background, where a large competitor in Queensland is likely to be more internally focused,” he said.

“With BOQ currently trading at a PE (price-to-earnings ratio) of 9.4 times and an expected dividend yield of 7.4 per cent, the stock currently looks inexpensive to peers and history. However, we think the share price could underperform in the short to near term.”

Jefferies analyst Brian Johnson labelled the immediate exit of Mr Frazis as “troubling” and suggested near-term risk to the bank’s balance sheet and its ability to meet its stated return targets.

Bank of Queensland’s now former chief executive, George Frazis. Picture: Nikki Short

“BOQ’s target financial year 2026 (estimated) return on equity >9.25 per cent and

“Given references to strengthening resilience and non-financial risk, there are likely balance sheet implications. As Australia recession risks grow, and excess system liquidity drains away, we think Australian banks underperform.”

Mr Allaway on Monday said given the difficult economic environment and seven rate hikes this year, BOQ would slow its lending growth.

“We still want to grow but the focus is more about quality growth and ensuring we get an appropriate return on that growth,” he added.

When asked about the attributes the board was seeking in a new CEO, Mr Allaway said it was looking for a “consummate experienced banker” that had navigated a transformation program, had a track record of execution and fostered a good culture.

“Culture is critical in any organisation and we need our CEO to lead that culture, and our focus is on ensuring we have an inclusive culture with room for diversified views, which is so important; that issues are escalated quickly, that individuals are not scared to speak up, and that we have a meritocracy.”

Morgan Stanley analyst Richard Wiles said Mr Frazis’s departure would add to investors’ concerns about the progress of BOQ’s multi-year strategic transformation, which is not due for completion until 2025.

He noted that BOQ had to traverse challenges, including a slowing mortgage market and completing the integration of the ME Bank acquisition.

Ord Minnett analysts said Mr Frazis’s exit added to “an already high level” of churn within the executive ranks at BOQ and also noted cost pressures within the bank.

“We expect increased spending on the open banking program to be a major cost headwind in financial year 2023, with the bank having already been fined $133,200 (by the ACCC) for allegedly breaching Consumer Data Right obligations, and with some data latency issues still to be resolved,” they said.

The analysts noted Mr Frazis’s three-year tenure saw the departure of executives including Peter Sarantzouklis and Fiamma Morton separately as heads of the business bank, retail banking boss Lyn McGrath and more recently finance chief Ewen Stafford.