Cormac McCarthy, a central figure in Ireland’s banking bust, has ridden back into town as the second-in-command at Paddy Power Plc, one of the great Irish success stories of recent years, writes Kyran Fitzgerald
It has to be one of the greatest tales of recovery since Lazarus arose from the dead.
Cormac McCarthy, a central figure in Ireland’s banking bust, has ridden back to town as the second-in-command at Paddy Power Plc, one of the great Irish success stories of recent years. In October, McCarthy will succeed Jack Massey as chief finance officer and as an executive director of the company, effectively deputy chief under chief executive Patrick Kennedy.
A man who bet heavily on property, ultimately gambling away billions in shareholder funds, has found a route to redemption in the betting and gaming industry.
Kennedy is giving the kiss of life to a career which shone for many years before crashing and burning in spectacular fashion after the construction and property bubbles burst.
McCarthy served as chief executive of Ulster Bank from 2004 to 2011. He was a pioneer, in 2005, of the 100% home mortgage and largely bankrolled developer Sean Dunne. Dunne broke all sorts of records paying €400m for the Jurys and Berkeley Court hotels, which he planned to transform into an Irish version of Manhattan at a cost of €1.5bn.
Royal Bank of Scotland, Ulster’s parent, now owned by the British taxpayer, has taken provisions to cover over £11bn to cover loan losses at its Irish subsidiary.
RBS itself posted losses for 2009 of £24bn, the biggest in UK corporate history. Its long-time chief executive, Fred Goodwin, became a hate figure in Britain and was recently stripped of his knighthood.
Unlike his boss, and & unlike the other Irish bank chiefs of the Tiger era,McCarthy hung around to try and clear up some of the mess left on his watch. Stubbornness, perhaps.
Ulster Bank became the first to wield the axe to its workforce and was among the first here to come clean about the sheer scale of its problem loans and bad debts.
McCarthy finally stood down as chief executive just over a year ago.
His replacement, New Zealander Jim Brown, has specialised in restructuring banks that over lent during financial bubbles.
The reason for this latest appointment is that Paddy Power is engaged in breakneck international expansion and it needs to strengthen its management team.
McCarthy emerged from the pack following a lengthy recruitment process. He should be kept busy as Paddy Power’s expansion continues.
Says chief executive Patrick Kennedy : “The global betting and gaming industry is worth $375bn (annually). Only 9% of this is online. Three years ago, a billion people were online. It is two billion today and it will be five billion by 2020.”
Paddy Power aims to grab a big slice of a rapidly developing online betting market, much of it operated by users of mobile phones.
The betting market is being regulated, gradually, as national and state governments learn to accept online betting and seek to control it.
Paddy Power makes a virtue of the fact that it operates only in regulated jurisdictions. The process of regulation will throw up big opportunities.
It is hard to believe but when Paddy Power first came into being, in 1988, it was as a result of three Irish bookmakers, including first chief executive Stewart Kenny, getting together to resist the onslaught on the domestic market from large UK entrants, such as Ladbrokes and Corals.
Kenny was a brilliant brand builder, a publicity hound par excellence. The company positioned itself at the value end of the market, offering plenty for the punter.
His successor, Kennedy, is a hard-headed businessman who came in from outside the industry having served as chief finance officer at Greencore.
He has transformed the group into an international online betting powerhouse.
His father, David, was Aer Lingus boss, back in the days when routes were carved up by the old IATA cartel.
Today, paddy power employs 3,400, including 2,172 in Ireland, almost 900 of them so called ‘smart economy’ people.
In the past three years, the group has been the top hirer of third and fourth levels math graduates from Irish universities.
It employs more people in Ireland than either Google or Microsoft.
The decision to hire McCarthy follows on from the recognition that management needs beefing up.
The current chief executive, Jack Massey, is stepping back, to concentrate on managing the finances while also assuming the role as company secretary.
The hiring process, culminating in McCarthy’s appointment, was intensive.
Says Kennedy: “ Cormac was the outstanding candidate. We felt he had formidable capability& and a real passion for Paddy Power.”
As non-executive director since Autumn last, McCarthy was on the inside track.
Kennedy points out that over three quarters of the group’s top layer of management are new to the company, or new to their role, having arrived in the past two years.
Last year, net revenues rose by 17% to €4,6bn, and earnings per share by 26%. Operating profit amounted to €120m.
In the year to date, revenues are up 28%. The company has joined forces with the French PMU in the biggest business to business deal ever in the sector.
Kennedy accepts that McCarthy has had “some significant problems”, but was attracted by his track record as a finance director and his success at First Active plc, the onetime building society that was eventually absorbed into Ulster Bank. He also regards McCarthy’s international experience with RBS, on its executive management board and heading up its UK consumer retail business, as “helpful”.
McCarthy will beinvolved in all the major business decisions and will have ultimate oversight of the group finances.
In the past, his talent has been in shaking up moribund organisations, such as First Active.
When McCarthy arrived, First Active was languishing following its flotation. He trimmed the branch network, returning the company to long-term sustainability. It was eventually sold to RBS for around €400m.
Both there and at Ulster bank, McCarthy was a great believer in driving sales. Branches were set ambitious targets. The industry headed in that direction and many are suffering today as a result.
McCarthy began his career as a chartered accountant at SKC, now KPMG, but several years in a senior position at Woodchester Investments, later owned by GE Money, would have left him influenced by thrusting American approaches to business development,approaches that are now anathema to the current generation of chastened, indeed frightened, bankers.
McCarthy is fortunate. He has been given a shot at redemption, albeit as a second-in-command, a chance to participate in what to date has been a remarkable home-grown commercial success story.
Patrick Kennedy has looked at the odds and placed his bet. Some onlookers are scratching their heads. Soon it will beMcCarthy’s race to run.
* Age: 49. Earlychildhood spent inNigeria and Zambia.
* Education: Terenure College. B.Comm, UCD.
* Career: 1987: Qualified as a chartered accountant.
Audit manager, SKC.
1990-97: Woodchester Bank, group financial controller.
1997-98: GE Money.
1998-99: Head of finance, First Active.
1999-2003: Chief executive First Active.
2004-2011: Chief executive Ulster Bank.
Member, group executive management committee, RBS.
* Married. Laura. Four children.
* Leisure: Sport.
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