Buckley’s chance pays off

Allied Irish Bank chief executive Michael Buckley was never expected to make it this far, but AIB’s recent record results and successful Polish push suggest he might make it to retirement, Kyran Fitzgerald reports.

LAST May, there were few people around who would have laid money on AIB Group CEO Michael Buckley being around to retire on the originally scheduled February 2006 date, but barring yet another cataclysm down in Ballsbridge, it looks as if this indeed will be the case.

To say that Buckley's tenure has been accident prone is a huge understatement, and yet the man has just popped open the corks on a record set of financial results while many of his critics in the financial world are once again doffing their caps and acknowledging his undoubted strengths.

This week, AIB announced pre tax profits of €1.4 billion for 2004, a rise of almost €400 million on the previous year. Once again, AIB is riding on the back of a booming Irish economy.

Its sometimes troubled Capital Markets division contributed a healthy €330m while its successful GB and Northern Ireland division pitched in with almost €290m.

Of perhaps the greatest personal satisfaction to the CEO is the long-awaited turnaround in the Polish operation, very much Buckley's personal baby.

Last summer, the CEO looked worn out.

People recalled his decisive reaction to the scandal at AIB's US subsidiary, Allfirst, when almost €700m has been gambled away by rogue trader, John Rusnack. The inspired appointment of a leading US banking regulator, Eugene Ludwig to investigate the bank's compliance procedures, combined with a policy of absolute candour had steadied the ship and by early 2004, AIB and Buckley appeared set fair.

Revelations of overcharging of customers, of mis-selling and of the existence of an undisclosed British Virgin Islands company, Faldor set up for the benefit of AIB executives once again tore away the veil of respectability that had been put back in place.

A lesser man might have buckled, but Buckley stuck it out. Back in the late Eighties, he had worked closely with former Taoiseach, Charles Haughey, in establishing the IFSC financial centre and clearly, he has learned some survival tricks from the old Fox of Kinsealy.

Says one leading fund manager: "Ironically, one of Buckley's greatest strengths is as a crisis manager yet he also served as the operations guy in Capital Markets from where a lot of the scandals emerged."

Buckley eventually rose to the position of Secretary of the Department of Social Welfare before heading to the private sector to work with Dermot Desmond at NCB Stockbrokers at a time when NCB was challenging then market leaders, Davys and Goodbodys.

At that point, Buckley was seen as the man with the administrative skills to implement the innovative ideas that flowed from the brain of NCB's driving force, Dermot Desmond. In 1991, Buckley took over as MD before joining AIB the following year as Head of Investment Banking with the task of reviving the bank's underperforming merchant banking arm.

As a civil servant, he won plaudits from Ministers he worked under such as Fine Gael's Gemma Hussey. Highly versatile, he had previously lectured in UCD's Department of Politics and had spent time as a senior official at the European Court of Auditors.

In 1991, Buckley was joining an organisation with a troubled past. In 1985, the then AIB Chairman, Niall Crowley had been forced to travel to the Department of Industry and Commerce to organise a Government bailout of the Group following its disastrous foray into the reinsurance business.

The ICI debacle would end up costing AIB and the wider banking sector and customers more than five hundred million euros. Before ICI, the bank ran up considerable bad debts as a result of overlending to the Farming and Agri business sector.

Since the late 1990s, the list of scandals has appeared almost endless. First came the DIRT tax affair and revelations about the very poor treatment meted out to the bank's Group Internal auditor, Tony Spollen, by many of his colleagues after Spollen sought to expose the DIRT affair. In 1999, senior AIB executives were called to explain themselves before the Public Accounts Committee. What was striking about the overcharging revelations was the sheer duration of the non disclosure.

As one senior member in the investment community puts it, "this is an organisation where the culture of cute hoorism has been prevalent for generations."

Last summer, the CEO was asked by the Sunday Business Post whether the succession of scandals and episodes of large scale financial loss could be attributed to a culture that emphasised performance at the expense of personal ethics. Buckley hinted at apology, using language that would do Sir Humphrey proud.

"One of the things that has been a learning exercise for me is that the CEO of a services company can easily underestimate the effort that needs to be put into the alignment of culture and strategy," adding that "much that remains to be done is about defining peoples' accountability."

But he went on to add more: "In any organisation that has a lot of people who come in at age seventeen, or eighteen, you have a lot of camaraderie ... there is a fear that this gives rise to a certain self censorship."

What he is talking about is a tight, inward looking culture filled with like minded people, largely male and golf playing. During his fourteen years at AIB, however, the CEO stood apart from, but did appear to challenge this culture and it was on his watch that the wounds at Allfirst were allowed to fester.

Last December's IFSRA's Report contains a serious indictment of that culture, one that allowed overcharging practices to continue for around eight years.

Arguably, there were too many distractions. The CEO obviously felt he had bigger fish to fry as he pursued an ambitious overseas expansion strategy.

Take the move into Poland with the purchase of a minority stake in WBK in 1995. In 1999, AIB bought 80% of the State run Bank Zachodny merging it with WBK to create an institution in the Polish top five in terms of assets.

This decision is finally beginning to pay dividends and could prove to be of major long term strategic significance as the Polish economy begins to perform to potential, but Bank Zachodny has absorbed large amounts of management energy in its long road to recovery.

On the domestic front, AIB has been able to benefit from a favourable economic head wind. However, analysts give credit to Buckley and his predecessor Tom Mulcahy for moving away from the old cost-cutting strategy centred on branch closures and the hiring of low cost recruits involving confrontation with the trade unions.

In its place, AIB have worked out a partnership arrangement with the Irish Bank Officials Association.

Says one fund manager: "AIB were probably quick to recognise the risks of cost cutting. Bank of Ireland are only beginning to wake up to this now."

According to Kevin McConnell of Bloxham Stockbrokers, during Buckley's tenure, shareholders have benefited from a significant increase in the share price along with rising dividend flow.

"Ultimately, AIB is delivering. Suddenly, Poland is turning round, Ireland is booming, the UK is doing well and Capital Markets is delivering big time."

Over the next few months, Buckley will be keen to anchor AIB's position in key markets.

The bank has a strong franchise in Britain where it has successfully targeted SMEs and professional firms as well as Asian ethnic groups and the traditional Irish customer base.

At home, AIB is likely to encounter increasing competition from a revitalised Ulster Bank under the control of Royal Bank of Scotland and from niche players, keen to nibble part of AIB's fat lunch packet.

At the same time, the CEO will have to work with the Chairman, Dermot Gleeson, to ensure that real as opposed to cosmetic changes in AIB's internal culture are secured and the damage to AIB's reputation can start to be reversed.