Want to know what's going to happen in banking and the economy? Ask the outsourcer
The boss of professional services company Capita Ireland is at the coalface of industry, and tells Gavin McLoughlin about the shape of things to come in Irish banking
Capita is one of those companies whose name people tend to know, but whose business they can't describe. The company calls itself "the UK's leading business process outsourcing and professional services company" - a description which doesn't really shed much light.
It's a massive employer in Ireland though, with around 1,600 staff. Marino man Robbie Hughes (47) is in charge here, and says the company is on track to hire another 200 people - across a wide range of areas - over the next two years.
Hughes occupies a corner office in Two Grand Canal Square in Dublin, a magnificent office block built by the developer Joe O'Reilly. There he tells me the company is best thought of as an outsourcer - a firm that will do jobs other businesses don't want to do, or can't do at scale.
That's a lot of jobs across a lot of industries. Capita has its finger in many pies. The Irish arm's clients include Nama, domestic banks, international investment banks, private equity funds, government departments, and Irish plcs. That makes it a reasonable barometer of the economy in general - its shareholder services business, which boomed during the late '90s and early 2000s, is now stagnant, Hughes says.
But in the financial world it's been a different story, and that's where Capita's presence is perhaps most interesting in an Irish context. The last two and a half years have been good for the business.
"In the last two and a half years in particular our growth has accelerated because lots of institutions are now selling off portfolios of debt," Hughes says.
"We think that will continue, probably into 2016. But pretty much beyond 2016 we think that most banks who want to sell will have sold whatever loan books that they wish. I think what we'll see then is banks beginning to rethink what their business model is. What do they want to be, and what should they be in the new world order of banking, which is kind of back to what they were doing back in the '80s and '90s. What they were good at rather than what they became.
"Most of the buyers of that debt don't particularly have or want the infrastructure that it takes in order to be able to manage a portfolio of loans.
"We tend to do all of the on-the-ground administration, and the analysis, and the engagement with the borrowers... but ultimately it's the decision of the owners of the debt in terms of what they want to do and how they want to exit," he adds.
"A lot of the debt that's been sold is not mortgages but commercial real estate loans, anything from €1m to €100m and beyond in terms of individual loan sizes, so a lot of them are kind of sophisticated borrowers who have lots of professional advisers, and that's about trying to understand their business, understanding what the future holds, trying to look at property markets and where values are going, and trying to make a best judgement call as to what's the best exit route or what's the best restructure for that borrower given their current business plans."
Most of Capita's portfolio covers commercial property loans but it's also a player in the mortgage market, which is widely seen as in dire need of a shake-up. The high variable interest rates charged here have been a topic of some controversy, but it appears some competition may be on the horizon. Pepper has recently unveiled its plan to start lending mortgages, and the Sunday Independent last week reported that the British-based Northview Group is eyeing up the market too. Hughes has more positive indicators.
"We're working with a number of other providers who will also come to market this year, I can't say who they are yet... they're not banks," Hughes tells me.
"If you take the UK market, the traditional lending by banks was taken up by what they call challenger banks, the likes of Tesco Bank or Sainsbury's Bank. Now I just think this market's too small for that to happen. But what is happening here is people who have raised equity internationally see that there's a gap in the Irish market... there's a huge gap.
"The question is how much of that gap can they fill? It's impossible to know but take the estimates for new mortgage lending in 2015, the numbers aren't out but it's going to be just north of €4bn of new mortgages. The business plans that I've seen for most of these new lenders estimate that they will get to €1bn in three years. Now if you have a number of those players who reach that target in the next three years, then they're a reasonable percentage of the overall market.
"But what's also important is that banks, though they're not going to go away, will have to react to that. Maybe that will be a catalyst for them actually bringing out more innovative products, better priced products.
"By the way that's not just happening in the mortgage space. That's the first wave that we've seen but we're dealing with a number of institutions who are interested in lending into the SME space, which again is really a sector in Ireland that's been starved of capital. I think it's really across the spectrum, you've seen it at the lower levels with even peer-to-peer lending as well. All of that is as a result of the banking crisis.
"These new lenders aren't going to go away, if you think of the business models that these new lenders have, they don't have the huge overhead of legacy banking systems, large offices with lots of headcount in the centre of Dublin.
"Their business model is agile, and it's lean, and they also appeal to a younger age profile as well, who don't necessarily want to be going into retail bank branches." If that's the future of banking, what's the future of Capita? Hughes says the new hires will be across a broad range of areas. There'll be callcentre agents, graduates, accountants, project managers, business analysts and others.
There may also be an acquisition, says Hughes, who found himself at Capita because of the acquisition of real-estate lender Capmark's European operations.
"Capita is a very acquisitive company... the reason we acquire, particularly in an Irish context, is one of three reasons. One, scale in our existing markets, two, access to new services or capabilities, or three, if we're looking to go international.
"We are looking at a number of opportunities... we're now the largest independent European service provider in the debt space so I don't particularly want to look at more scale in that area. I think it's more about adding on new services.
"And if I were to tell you that one of the things that our clients are looking for more and more of, which we have, but we just need to build greater capability in, is insight and analytics... what clients are now looking for is the next level of insight, so I think that's where you'll see activity."