Light at the end of the tunnel for Ulster Bank?

As the reputation of Irish bankers hits the floor, we have turned to those from outside our shores to help steer our banks back towards some form of respectability. Whether it will work or not remains to be seen, writes Kyran Fitzgerald

Light at the end of the tunnel for Ulster Bank?

THE days when Irish financial institutions hired from within the organisation for the job of chief executive appear to be well and truly over, for now.

Sadly, the reputation of Irish bankers overseas has hit the floor and we have turned perforce to people from outside our little Republic to help steer our banks back towards some form of respectability.

An Englishman, Matthew Elderfield is now into his second year as Ireland’s financial regulator. We have also witnessed the arrival of Mike Aynsley and Martin van Eden at National Irish Bank; Gerry McGinn from Northern Ireland at Irish Nationwide; David Hodgkinson to the post of executive chairman at AIB; and now New Zealand born Jim Brown at Ulster Bank, subsidiary of nationalised RBS.

Jim Brown has spent all his career in Asia and Australasia, much of it in Taiwan, an island which served as a refuge for the Nationalist Chinese forced fleeing following the Communist takeover of China in 1949.

Brown spent six years on the island working for the Dutch banking conglomerate, ABN AMRO, initially as Assets Director and latterly as country business manager, between 1999 and 2005.

It was during this period that the mainland Chinese economy really began to take off.

While tensions between the People’s Republic and Taiwan remain high, very close economic links between both countries has been forged.

This has given the incoming Ulster Bank CEO a chance to study closely the emerging economic super power of the Twenty First Century.

From 2005, he served as head of consumer clients in Asia for ABN AMRO prior to its takeover in 2007 by RBS, then on an aggressive expansion trail under the stewardship of Fred ‘the Shred’ Goodwin — the man soon to become for a while arguably the most hated figure in Britain following the dramatic implosion of RBS in the autumn of 2008.

The acquisition of ABN AMRO was to prove a step too far for RBS, though this would not become clear for some time — however, Brown remained on in the organisation, working for RBS as CEO of its retail & commercial division in Asia.

As part of a major deleverage exercise, RBS has been unwinding its position there, selling off much of its Asian business in late 2009 — the last of its retail and commercial banking operations in India, China and Malaysia were offloaded for $550m.

In the process, CEO Stephen Hester has refocused RBS as a lower risk, Britain/Ireland focused bank. At least, the decision was not taken to pull stumps and move off the island, along with HBOS.

By 2009, all had changed utterly and the Fred Goodwin era was over.

RBS had fallen into the hands of the British government. It is now 83% owned by the state. Its new chief executive, Stephen Hester, has attracted a lot of adverse media coverage because of the scale of his salary package, but there is more to him than that.

Hester is a large than life figure. He took a first at Oxford in philosophy, politics and economics. He went on, at 35 to become the youngest ever MD of Credit Suisse First Boston. He has four houses, including a 350-acre country estate in Oxfordshire and is a backer of the Tories. He enjoys safaris, scuba diving, croquet, tennis and classical cars. Despite benefiting from a huge state rescue, pay packages at RBS are good.

Its top five bankers earned £20m between them, last year and 231 key employees earned an average of £1.1m each. Nice work if you can get it. That said, Hester has succeeded in turning round the fortunes of RBS, winning much respect in the process.

Ulster Bank, the RBS subsidiary on the island of Ireland remains a major fly in the ointment for RBS — financially speaking, a troubled relative whom the rest of the family would prefer not to hear from that often.

Ulster Bank recently announced a loss of stg£761m almost double the figure for 2009, taking total losses well past the €1bn mark.

It has taken bad debt charges of £3.8bn on total loans of £51bn. The carnage has been huge. the best that can be said is that Ulster has taken the hit, recognising its losses and restructuring well ahead of its mainstream Irish banking peers.

Outgoing chief Cormac McCarthy made disastrous lending decisions during the Goodwin era, the best known being his decision to advance £260m to the property developer Sean Dunne for the acquisitions of the Jurys Doyle and Berkely court hotel sites in Ballsbridge.

Ulster Bank is now operating the hotels on the site. It now also controls Arnotts, the leading retailer along with an Anglo Irish Bank now in rundown mode. At the height of the boom, Ulster Bank relied heavily on the money markets — in December 2006, it completed the largest ever securitisation put in place by an Irish bank — worth almost €4bn.

Post slump, Ulster is now in the process of shrinking its core business and in particular, its loan book, which it has been stated, will be heavily weighted in future towards residential mortgages.

Jim Brown has kept a low profile in contrast to his media accessible predecessor. He will become the first person at the helm in Irish banking, apart from EBS boss, Fergus Murphy, to have real exposure to the most dynamic area of the globe.

Despite his association with the boom, outgoing CEO Cormac McCarthy has stayed at the helm and will finally depart in July, almost three years after the financial meltdown. His skills when it comes to slimming down businesses are undoubted. He played a key role in transforming First Active a decade ago. Just a pity about the lending decisions made subsequently.

Staff numbers have been cut by a thousand and 45 branches have closed. The First Active brand has disappeared. The bank, however, now opens on Saturdays and has been targeting bank depositors fretful about the future efficacy of the Irish government bank guarantee and the solvency of the Irish sovereign. Sixty thousand customers have used the bank on Saturdays.

It launched a private banking service last September and has recently announced plans to expand it. Its focus will be on people earning in excess of £145,000 a year and with savings of £200,000 plus. As its head of private banking, Pat Farrell put it: “There is still money left in the country.”

There is still plenty of muck to be cleaned off the floor of the stable.

Six percent of its £21bn loan book is 90 days or more in arrears — that represents a hell of a lot of stress in the system and explains the sheer scale of the €24bn Irish covered bank recapitalisation package announced on Thursday.

The Central Bank governor Patrick Honohan and Finance Minister, Michael Noonan have talked about the need to create two pillar banks, AIB/ EBS and Bank of Ireland. But they are conscious of the need to avoid a duopoly where customers are forced to carry unnecessarily heavy costs in the form of high charges and heavy loan rates.

Ulster Bank has long seen itself as the traditional third force bank with a major branch network. In the past, it served the key SME market well, developing a range of financing services aimed at exporters, in particular. The bank allowed itself to be sucked into the property mania.

It has a chance now to restore itself to a position as a real bank for enterprise and in particular, for those with soundly based commercial aspirations.

The real question is whether Jim Brown — who will report to the RBS head of retail in Britain — has been given the task of simply sucking the maximum amount of deposits from nervous Irish savers in order to boost the RBS loan to deposit ratio, or whether Ulster Bank will once again, play a part as a genuine third force operator in Irish banking in support of enterprise and the community. Only time will tell.

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