Successful outcome to deal could catapult First Active chief to greater things

WHEN the Eircom dream turned to dust, thousands of novice shareholders walked away from the stock markets, many of them never to return.

But this autumn, the dream was reawakened with the news that Ulster Bank's parent, Royal Bank of Scotland was paying almost €900 million euro for a company, which three years ago, was on the floor.

One hundred and forty thousand shareholders awoke to the news that they stood to receive between €3,000 and just under €6,150 each under the proposed takeover deal.

The share price promptly jumped from €4.65 to €6.20.

The deal had been one of the best-kept secrets in a town notorious for clicking tongues.

In fact, negotiations had been conducted well away from the hothouse word of Dublin's golden circles in London.

First Active Chief Executive Officer Cormac McCarthy and the bank's Chairman, John Callaghan had, in fact, taken a leaf out of the book of their rivals at Irish Life & Permanent.

David Went, Roy Douglas and John Bourke had been similarly successful in putting together their surprise merger deal, a short few years previously.

To RBS and its 44 year old CEO, Fred Goodwin, this deal was actually no big deal. This is the man who engineered the £22bn takeover by RBS of National Westminster Bank in March 2000, by far the largest hostile takeover in British corporate history. In the process, he became the youngest CEO among Britain's top 10 banks.

This is a man who cut his managerial teeth at the Rosyth Royal Docks in the mid-80s.

Up until the announcement of the takeover offer in the autumn, First Active had enjoyed a mixed year. One of its clients, a West of Ireland construction company had collapsed. Litigation was pending. The share price had rolled back from the levels reached towards the end of 2002.

However, the underlying business was solid and the real issue affecting First Active going forward was: would it have sufficient scale to survive as an independent entity.

Cormac McCarthy found himself constantly having to fend off questioning on the bank's future. At a lunch in early September, he told the Leinster Society of Chartered Accountants that "the last three years had demonstrated that independence is a genuinely viable strategy."

He was quoted by RTE's online service as stating that the rumours of a takeover were a "waste of time."

Indeed, the particular rumours 'centering' on a tie-up with Irish Life & Permanent were?

Mr McCarthy and his management team obviously had to make a judgement call.

But the young banker is typical of his breed: dynamic, for sure, but conservative, too. This deal was all about the bird in the hand and bidding farewell to the two that might, one day, have been waiting in the bush.

Those who had piled in to First Active five years ago, stood to gain well over 100% on their original flotation outlay on top of those dividend payouts and a bonus payment of just over €100 a share, earlier in the year.

It was, as the man says, a no-brainer.

Cormac McCarthy himself stands to pick up around €2.5 million on his options, his lieutenant, Michael Torpey, around €1.6 million.

The pair have moved into the same positions as CEO and Finance Director in the enlarged group. RBS boss Fred Goodwin has been making it clear that he wants the duo along with First Active Chairman, John Callaghan on board.

It was all quite different three and a half years ago, when Sean FitzPatrick came calling. The Anglo Irish boss could not offer the same job guarantees to the chairman and his then acting CEO. Mr FitzPatrick must have few regrets this just might be one of them.

At the press conference to announce the merger plans, Mr Goodwin indicated that several hundred jobs would have to go out of the 5,500 strong payroll at the merged entity. The union reaction was predictable.

Both SIPTU and the IBOA, the lead unions at Ulster Bank and First Active respectively, have made it clear that any job losses will have to be voluntary.

Since the announcement, Cormac McCarthy appears to have made progress in calming the fears of his 700-strong.

Earlier this year, Ulster Bank management, at the behest of RBS, put in place a partnership structure involving top executives and the IBOA, ending a lengthy period of industrial relations tension.

Currently, HR issues surrounding the merger are being worked through fairly quietly. However, Cormac McCarthy will require all his considerable management skills to pilot this one through.

He has been there before, presiding over a much more radical reduction in the size of the First Active workforce between 2000 and 2002. Numbers employed fell from 1,000 to 700. Head office staff were concentrated in a single office complex at Central Park in Leopardstown. A cull of older managers and personnel was instituted.

Cormac McCarthy trained as a chartered accountant at KPMG, a forging ground for many a young financier. In 1990, he moved to work at Woodchester as financial controller under Craig McKinney the Scotsman who helped to shake up the consumer and leasing end of the financial services business in the eighties.

McKinney believed in bringing on the youngsters and McCarthy was quick to get significant responsibility.

His learning curve accelerated significantly after the US financial giant, GE Capital took over the company. McKinney eventually moved side of stage to enjoy more of his beloved hunting and McCarthy found himself working as part of a huge international conglomerate. GE transferred responsibility for much of its European business to Dublin. The size of Woodchester's business doubled.

Cormac clocked up the air miles but family life suffered and he opted to return home to take up a position at First National Building Society, then engaged in the process of converting to Plc status. Cormac advised on the flotation. Hot on the heels of the flotation came Irish entry to the euro, accompanied by plummeting interest rates. As margins on deposits fell, financial institutions sought to recover on the lending side only to witness the arrival of Bank of Scotland on a cattle rustling raid into the once cosy mortgage lending homestead.

A price war on mortgages followed. Eventually Bank Scotland would pull back, happy with its juicy share. But for the old guard at First Active, heavily dependent on the mortgage business, it mean catastrophe as the bank's share price plummeted. Cormac McCarthy watched as colleagues ran around in frantic circles. More and more responsibility and finally, the top job, came his way, the headhunters having elicited limited interest outside in what appeared to be a poisoned chalice.

Since taking over as CEO, he has shaken out costs, incentivised those left in a slimmed down branch network and has introduced innovative products.

The new range of Utopia products, allowing customers to borrow short term at mortgage rates, have won widespread approval. The bank has also targeted borrowers with some interesting savings product, though the CEO has conceded that a lot of work in this area is still needed. In fact, cross pollination among the bank's savers and borrowers is very low.

The potential here is considerable. The prospect that key IT and administrative functions will be centralised, probably outside of Ireland is also very real.

Cormac McCarthy and his close-knit team, including Michael Torpey and Des Fitzgerald, arguably face their biggest challenge yet as they seek to mesh two very different banking cultures while retaining separate brand identities.

The First Active deal may be small beer to Fred Goodwin, but expect the RBS boss to extract the last drop from the barrel. The Irish banking market has gotten interesting again. If Cormac McCarthy makes a real go of this, his future could well lie overseas, in a senior post in what is now the world's fifth largest bank and who knows, that €2.5m in his back pocket might one day, seem like small change.

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