Pioneer Cullen ponders Brexit 'opportunity' and possible Investec exit
Michael Cullen has suddenly become defensive. "You grew up in Monaghan", I say. "Yeah", he replies. "What's wrong with that"? he demands. "Nothing", I protest. "Why? Are you sensitive about Monaghan?"
"It's the way you said it", he insists.
The moment passes in a flash and the chief executive of Investec's Irish operations resumes the conversation in a more relaxed tone.
After almost 40 years in the upper echelons of Ireland's financial services sector, Cullen is not one to leave anything to chance. That includes any potential slight of his home county.
Despite his reputation as a pioneer of high finance in Ireland, running and acquiring some of the best-known firms in the sector, Cullen has remained relatively aloof from the media.
To some extent, given his record of leading nimble, innovative financial services firms, he regards himself as an outsider. He might have to re-evaluate that statue after being awarded the UCD Smurfit School Alumnus of the Year award.
The accolade ushers him into an elite club of prominent entrepreneurs that includes the likes of Superquinn founder Senator Feargal Quinn, Patrick Kennedy, the former CEO of Paddy Power - and chairman of Bank of Ireland - and Liam Fitzgerald, the former head of the pharmaceutical wholesaler United Drug.
It comes as he finds himself pitched onto the horns of a dilemma.
Investec, the specialist South African bank that entered Ireland in 2000 by taking over Cullen's Gandon Securities, a trailblazing firm which emerged in the late 1980s, may soon quit these shores altogether.
Alternatively, the business may be reconstituted and continue on a new path.
Investec Ireland has become caught up in the upheaval unleashed by Brexit.
The unexpected turn of events has left Cullen at a crossroads, although the 64-year old banker, with his short but unruly grey hair, rejects this characterisation, preferring to view it as a "moment of opportunities".
It's not the first business crisis he's faced, or even the worst.
That came a decade ago, in the shape of the bank guarantee.
"What we face today doesn't rank" Cullen says. "On a scale of one to 10 that was close to nine".
Up until that fateful political move, Investec Ireland was sailing through the crisis as it had funded its loan book entirely from its local deposit base - a stipulation, Cullen emphasises, laid down by Investec's outgoing CEO, Stephen Koseff.
The guarantee - ironically threw the weight of the State behind Investec's more troubled rivals - prompting SMEs to run for safety to guaranteed institutions and forced Cullen to fall back on Investec's London operations for support. After firing off a few letters of protest to politicians, he wrangled back business by wading into the retail deposit market, offered eye-watering saving rates of 6.5pc.
Now that the "cycle has come full circle" the retail business has dwindled, as has the loan book.
"We have never been in the business of lending money for lending's sake," says Cullen. "We lend to existing customers, but we don't seek to ever lend using credit as our entry point."
Without a sizeable corporate loan book there is little sense in growing a retail deposit division and besides Cullen points out, "it's a challenge ... how we'll manage it post-Brexit".
Ever guarded, he refuses to spell out the most likely scenario for a UK exit but says "we are live with looking for alternatives".
The difficulty is nobody knows what the landscape will look like post-Brexit. Yet standing still is not an option.
Cullen points out Investec Ireland, following the €32m merger with NCB stockbrokers in 2012, emerged as a "very capital light businesses" with "great fee-based earnings" and ambitious growth strategies.
Tentative overtures were made to Goodbody and Investec pursued smaller bolt-on acquisitions. But "then a vote happened called the Brexit vote. Now one needs to understand what that means for my business". Cullen, who has a habit of rephrasing his sentences mid-speech, as if wary of providing too much detail, explains that 82pc of Investec Ireland's revenues are captured on the bank's UK balance sheet.
So, "post-Brexit I won't have a banking licence". And since the majority of revenues flow through the group's London base, "we have to examine all the alternatives... what does it mean if there is a hard Brexit or soft Brexit?"
One option, establishing a European banking subsidiary, was swiftly dismissed. The company would be transformed from a capital-light business to a capital-intensive one, weighed down by a post-crisis regulatory regime, he says.
"You're talking about €200m to €300m in trapped capital.
"That is trapped capital and in this day and age trapped capital is frowned upon by shareholders, so having a branch is a very efficient use of capital."
In the face of those regulatory requirements and "the business that we would do, it would take us nearly a generation to grow into that business, so that's clearly uneconomical".
Then there is the so-called "third country" option, whereby Brussels might permit UK institutions to continue passporting some services in to the EU. It might happen, but it might not.
"Therefore another alternative is that we set up Mifid [compliant] entities that don't require banking licences and we have applied to the Central Bank to do that.".
Even this option, which entails overhauling the legal status of most of Investec Ireland's various business lines, is "quite expensive" and would not preserve the firm in its entirety.
"I'd be very hopeful that of the revenues I spoke of, I should be able to protect nearly 90pc."
That brings Cullen to the fourth option; a sale, a break-up, a partial exit.
Is there even a formal sales process under way?
Cullen gives a guttural cough, as if an effort to hasten the conversation on to less awkward terrain. "I would say we had approaches a few months after the Brexit [vote] because people realised we had … people realised we had to do something."
But he's keen to get the cat back into the bag, citing "confidentiality agreements" and the need to "have some order to what we look at rather, than disorder".
As has been widely reported, takeover talks with AIB unravelled earlier this year. Cullen bluntly declines to discuss the episode but emphasises there are "no exclusivity talks with anybody".
Instead, he views all the disruption as "inconvenient [to] our ambitions", stressing "we are positioned for growth in a growth market".
Investec Ireland notched up annual revenues of over €80m at the end of March, rising from close to €70m in 2016. Cullen anticipates the company, which he describes as at critical, as opposed to "optimum" mass, could generate €100m in revenue without a significant hike in overheads.
The challenge is to preserve that upward momentum at a time of chaotic change.
"Brexit is a while away," says Cullen.
He reckons there's still time to "optimise the best outcome" for his four key stakeholders; the shareholder (Investec), the regulator, the staff and his customers.
The efforts are focused on providing a "seamless" solution to "the customers… and I would be very confident that my regulatory permissions will come through but whether I want it or the shareholder wants it, the one thing that we have to ensure is that the customer wants it," he says.
The biggest concern is Investec Ireland's international business, the largest division in terms of income generation, he explains.
While other segments of the company have been previously regulated in Ireland, this "specialist" unit, which plays in a lucrative but obscure corner of the global financial markets, has not.
There is no question of decamping the division to London.
"The scale and expertise" are here Cullen argues.
"We have been at it close on 20 years, we are very familiar with it."
Essentially, the business deals in securities lending, borrowing and lending billions of euro worth of stock on a daily basis to enable hedge funds to implement trading positions.
The international division, as Cullen labels it, employs just seven people on the front line, compared to 38 in the private wealth arm.
Grown predominantly out of the NCB merger, private wealth has commanded much of the media attention in recent months amid persistent speculation about circling suitors.
Part of its attraction is the reliability of revenue.
Since the crash, private wealth has become a core element of Davy's business model, and the stockbroker and asset manager now dominates the sector.
Cullen claims Investec Ireland, which has expanded assets under management and administration (AUMA) from €1.3bn at the time of the NCB merger to €2.5bn, is holding its market share against its rivals in the race for new mandates.
But Cullen argues it's a "slow-growth business". Costs are also on the rise thanks to a harsher regulatory environment.
It's all a far cry from the relatively unfettered, free-wheeling 1980s when Cullen, who won a scholarship to study commerce at UCD and completed a Masters in 1975, started to make his mark.
After quitting his trainee accountant role at Craig Gardner, he joined the now defunct Industrial Credit Corporation (ICC), presided over by old-style banker, Frank Casey.
Richie Boucher, former head of Bank of Ireland, Colm Doherty, the former boss of AIB, Aidan Brady, a former long-serving CEO of Citi's Irish and later European operations, as well as Tim Brosnan, chairman of Abbey Capital, all passed through its ranks.
Cullen says Brosnan was a "massive influence", "highly intelligent" and a "maverick". In 1987, the pair, along with Dave Billings, struck out on their own with Gandon Securities .
The idea was to trade the same exotic financial products they had unleashed over at Citibank.
By September of that year Gandon's investors, which included Citibank, Davy and Irish Life, had committed $50m to the venture.
But then Black Monday hit.
"We all need luck in life," Cullen says with a laugh. The stakeholders only released the money later in that year, when the market carnage had eased.
"I doubt you and I would be talking if the money had come in ahead of Black Monday."
On such twists of fate, fortunes turn.
Gandon, the first company to operate under an IFSC licence, later merged with Woodchester.
By that stage, rainmakers at Gandon's pioneering futures funds management arm had jumped ship and the business was offloaded to Dermot Desmond's IIU.
When GE swallowed Woodchester, Cullen had to find a new home for Gandon, pitching him into the arms of the acquisitive South African bank.
The looming UK divorce bill has flung Cullen, the son of a builder, back into battle mode. As he nears retirement age, it may be his last stand. As with so many turning points in his career, the future looks uncertain.
But there is a sense Cullen, a grandfather of six - all four of his children work in financial services - relishes an unpredictable narrative.
Most of his contemporaries, like Boucher, Doherty and Brady, have stepped into calmer waters.
Cullen is sailing into the squalls of Britain's EU exit.
The stakes are high. Navigating Brexit means he's had little time to celebrate wins along the way. Investec banked close to €30m from the sale of the Irish stock exchange.
Cullen admits he is yet to have "a glass of water" on that deal. "We will at some point" he vows.
Right now, however, his sights are set on a far larger prize.