Monday 16 September 2019

Anglo's quiet Drumm

NEWSMAKER OF THE WEEK

WHEN Anglo Irish Bank announced in September 2004 that David Drumm was to succeed Sean FitzPatrick as its chief executive, the almost universal response was 'David who'?

The then little-known 37-year-old surprised virtually everyone when he pipped long-time favourite Tiarnan O'Mahoney for the top slot at Anglo.

Almost three years later, no one is still asking the same question. Since taking over the reins from FitzPatrick in January 2005, Drumm has grown Anglo's pre-tax profits by almost 70pc, with a further 40pc increase in profits likely for the 12 months to the end of September 2007.

This week, Anglo published its half-year results. By any standards they were impressive, with underlying pre-tax profits soaring by 47pc to €552m.

Brokers are now predicting full-year pre-tax profits of almost €1.2bn. Not bad going for an outfit that recorded pre-tax profits of just £24.2m (€30.7m) as recently as 1997.

Anglo Irish Bank is very much the creation of one man, its current chairman Sean FitzPatrick.

Although it was founded as long ago as 1964, it wasn't until FitzPatrick was appointed chief executive in 1986 that Anglo began its long climb out of the ranks of the also-rans to become Ireland's third-largest bank.

The Anglo business model was beguilingly simple. Instead of building up a large network of expensive retail branches, it would instead concentrate on lending to small businesses and professionals, such as doctors and solicitors.

This was traditionally a high-risk sector which the established clearing banks steered clear of.

This created an opening in the market which Anglo was able to exploit. When making lending decisions, its key criteria have always been that the borrower possesses the cash-flow necessary to repay the loan and the collateral, usually property, to protect the bank's interest if things go wrong.

The key to making this model work was hiring top-quality people who could accurately assess which potential borrowers were good for the money and winnowing out those who weren't at the application stage.

Anglo has never been afraid to pay top dollar to get those people, with its 1,500 staff being paid an average of almost €140,000 each last year.

Whether by accident or design, FitzPatrick's Anglo Irish Bank came to maturity just as the Celtic Tiger was unleashed.

Many of Anglo's customers, whom the larger banks had been reluctant to lend to, suddenly went from owning businesses worth hundreds of thousands of euro to owning businesses worth hundreds of millions of euro.

This meant that as Anglo's customers grew exponentially in a booming economy, the bank grew with them.

The results have been nothing short of spectacular. Not alone have profits grown almost forty-fold, inside just a decade the bank has gone from being the banking equivalent of a seven-stone weakling with gross assets of just £3.14bn (€4bn) in 1997 to being a 700-lb gorilla with likely gross assets of €95bn by the end of Anglo's current financial year in September.

This combination of soaring profits and gross assets has propelled Anglo's market value into the stratosphere. A decade ago the company was worth just €250m.

Now it is worth €12.4bn, ranking fourth on the Stock Exchange league table after AIB, CRH and Bank of Ireland.

For investors who were lucky enough to buy into Anglo early on it has been the Stock Exchange equivalent of winning the lottery.

Ten years ago you could have bought Anglo shares for just 81p (€1.03). They ended this week at €16.10 (€32.20 when the 2005 share split is taken into account).

What this means is that anyone who bought 1,000 Anglo shares for €1,030 a decade ago would now have shares worth €32,220. Investments don‘t come much sweeter than that.

FitzPatrick, or Seanie as he is universally known, was always going to be a hard act to follow. There was always the fear that Anglo was a one-man band, and that it would all end in tears when the great man retired.

Anglo's September 2004 announcement that it would be the previously unknown Drumm rather than O'Mahoney, the bank's number two for the previous ten years, who would be taking over the top job, did nothing to still these fears.

The bank's performance in the two-and-a-half years since he took over has silenced the doubters. If Anglo meets brokers' forecasts for the year to the end of this September, then Drumm will have delivered a compound 140pc increase in profits in just three years. Beat that, Seanie!

So just who is David Drumm? Unlike FitzPatrick, who was never backward about coming forward, Drumm prefers to keep a much lower public profile. The fact that FitzPatrick remains on the board as Anglo chairman suits Drumm just fine, allowing him to stay out of the limelight.

Now aged 40, he was born in the north Co Dublin village of Skerries and was educated at the local Christian Brothers School. After leaving school, he qualified as a chartered accountant with Deloitte & Touche.

He then joined Enterprise Equity, the venture capital arm of the International Fund for Ireland, in 1988. Based in Dundalk, the job gave the newly-qualified accountant invaluable hands-on experience in dealing with start-up companies on both sides of the Border.

Among the companies Enterprise invested in were Monaghan Mushrooms and Moffett Engineering.

After five years in Dundalk, Drumm decided to move back to Dublin and joined accountants Bastow Charlton.

The return to his accountancy roots was not a success. After five years in venture capital, Drumm could no longer bear the drudgery of audit work.

Within a few months he applied for a job as a manager with the then tiny Anglo Irish Bank. Instead, Anglo offered him a job as an assistant manager, which paid 40pc less than his existing job.

Drumm took the job anyway. It proved to be a good move. By 1995 he had been promoted to manager.

However, it was his success in building up Anglo's US operation from scratch which first marked him out as a potential successor to FitzPatrick.

In 1997, he and his young family were dispatched to the US to scout out possible opportunities. After six months on the road kicking the tyres in New York, Chicago and the West Coast, Drumm decided that Boston offered the prospects for Anglo.

By the end of last year the US business had gross assets of over €4.3bn. This from an operation that started life out of Drumm's rented apartment.

Impressed by his success in developing Anglo's US business, FitzPatrick recalled Drumm in 2002 to become head of its Irish lending.

To appoint someone who was still only 35 to such a key position was an early sign that Drumm was a serious contender in the succession stakes.

In the run-up to FitzPatrick's retirement, the Anglo board interviewed four internal candidates for the job - Drumm, O'Mahoney, Tom Brown, then the head of its wealth management division, and John Rowan, then head of Anglo's UK offshoot.

The fact that, unlike his three rivals, Drumm wasn't an Anglo main board director meant that he was very much the dark horse. However, when the candidates were asked if, they didn't get the job, who would they rather got it, the other three all opted for Drumm.

In the aftermath of Drumm's appointment, both O'Mahoney and Rowan left Anglo, but Brown remains with the bank and now occupies Drumm's old job as head of Irish lending.

Despite being paid over €3m a year as Anglo boss and owning shares and options worth a further €17.5m, Drumm hasn't forsaken his north Co Dublin roots.

He and his wife Lorraine live with their two daughters in Malahide, and he is still a member of Skerries Golf Club and is a self-confessed "high-handicap" golfer.

While Drumm has so far been phenomenally successful in building on the legacy bequeathed to him by FitzPatrick, he now faces the challenge of a slowing Irish economy.

Last year's 45pc increase in Anglo's loan book is likely to fall to about 34pc this year and 28pc next year.

The growth in Anglo's Irish loan book is decelerating even more rapidly, with brokers anticipating an increase of just 17pc for the year to September 2008.

How Drumm deals with this slowdown will determine if he emerges as a business giant in his own right or remains forever in FitzPatrick's shadow.

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