George Frazis exit ‘part of Bank of Queensland pivot’: Patrick Allaway

Bank of Queensland executive chairman Patrick Allaway has signalled that chief executive George Frazis’s swift exit was driven by a desire for a more conservative strategy.

Bank of Queensland executive chairman Patrick Allaway has signalled that George Frazis’s swift exit was driven by a desire for a more conservative strategy, as he stressed the outgoing CEO was “very hard on his people” but was not a dysfunctional leader.

The shock exit of Mr Frazis, first revealed by The Australian on Monday, saw investors punish BOQ’s shares given the uncertainty that now surrounds the bank’s strategy and transformation plan. The stock tumbled 5.6 per cent to $7.14, making it the fifth biggest loser on the S&P/ASX 200 on Monday.

The CEO exit, effective immediately, sees Mr Allaway appointed executive chair while BOQ conducts an executive search.

Mr Allaway, a former investment banker, highlighted that the board was “pivoting the strategy”, which meant the bank wanted to boost its risk management and needed different skills and capabilities at its helm.

“We are shifting our priorities to focus on elements of the strategy to make the bank stronger, and to optimise our returns, and a big part of that is thinking about the economic environment that we’re going into. It’s also about dealing with an uplift in our risk controls,” he said in an interview.

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

Sources suggested domestic candidates that would probably be targeted for the CEO role would include Westpac specialist business executive Jason Yetton and National Australia Bank’s chief digital officer, Angie Mentis.

Mr Frazis joined BOQ in the top job in September 2019 – from Westpac – and had been implementing a turnaround plan at the bank, which included overhauling and replacing legacy technology systems. He also steered the acquisition of ME Bank, which completed last year, and had revived BOQ’s growth.

Asked about the swiftness of the decision and whether cultural factors were linked to Mr Frazis’s departure, Mr Allaway said: “We could have taken the view to keep George on and run a public process, but we’d end up with a lame duck CEO and that’s not appropriate … George has a particular style around his leadership, he’s very performance driven and he’s very hard on his people in terms of delivering against performance. But I would not call it dysfunctional by any means.

“This bank is not one individual but we have a team and the team all contribute in their individual ways to better outcomes.”

George Frazis will receive a payment of about $1.1m. Picture: Nikki Short

Mr Frazis’s tenure had been marred by high turnover among his executive ranks.

Investors will get the opportunity to question the board about Mr Frazis’s exit at the bank’s annual general meeting next week.

Investors Mutual portfolio manager Simon Conn said Mr Frazis had been a “change agent” at BOQ but it was clear the board had a different agenda as the economic climate soured. “That’s not a bad thing given the massive interest rate increases that we’re going to see going through the economy, combined with cost-of-living pressures,” Mr Conn said.

“It sounds just like a different focus. They don’t want to be growing too fast in this stage of the cycle. They want to be preserving capital and being prudent.”

But Credit Suisse analyst Jarrod Martin downgraded his BOQ rating to neutral, from outperform, after the CEO exit announcement, citing uncertainty about the bank’s prospects.

“The suddenness of the CEO departure comes as a surprise, especially given it is only now commencing an executive search and this could take up to nine months,” Mr Martin said.

“There was no earnings update with the announcement, which indicates to us that the departure was unlikely to be due to the current operational performance but for other reasons.

“We read this as a strategic pivot away from growth with increased investment in order to strengthen financial resilience.

“We see earnings risk in the near term.”

Mr Allaway said the bank wanted to bolster its risk management frameworks and also noted that the departure of Mr Frazis was unrelated to financial performance. “Our asset quality is ­really strong, as we called out at our year-end result, our loan book is in really good shape … We are not seeing any stress at this stage in our book,” he said.

Those with knowledge of the situation said differences in style, approach and ideas around the next stage of the bank’s transformation had contributed to Mr Frazis’s exit from the bank.

BOQ has also had a string of run-ins with regulators, including the competition watchdog and financial crimes regulator Austrac.

The bank’s annual report highlighted a penalty paid to the Australian Competition & Consumer Commission for missing a deadline related to the open banking regime, while the prudential regulator is also stepping up its monitoring of risk management at regional lenders. The annual report said the bank had underachieved on risk and return metrics but had overachieved in areas including digital technology and execution.

Under the exit terms of his contract, Mr Frazis will receive a payment of about $1.1m as he undertakes a period of gardening leave. He received 88 per cent of his total available performance shares for 2022 and 58 per cent of its available award options. The annual report showed Mr Frazis’s total statutory reported pay was $2.8m for 2022, up from $2.3m in the prior year.

Mr Allaway said the departing CEO was entitled to his exit payment but said incentive awards that had not vested could still be clawed back, at the discretion of the board. He said if that were to be the case, BOQ would disclose that to the market.

Executive departures over the past 18 months have included BOQ financial boss and operating chief Ewen Stafford, after just 2½ years at the regional lender. Other departures included chief customer officer Danielle Keighery and head of business banking, ­Fiamma Morton.