Wednesday 17 January 2018

Banking's man with a plan says Ireland Inc can only go upwards

Lender has expansion plans but only if the price is right

Emmet Oliver

Michael Cullen walks jauntily into the foyer of Investec's Dublin office. A smile decorates his face. He almost looks happy to have his photograph taken and shortly afterwards plunges into the Investec Ireland numbers with surprising relish.

Those numbers are mixed (good this year, not so good last year because of property impairments), but the body language is emphatically upbeat. It is a refreshing contrast to the rather hangdog expression which most Irish bank executives present these days.

Cullen has many of their problems, but on a much smaller scale. He also has something the Irish banks don't have -- a large and well-resourced parent, which in the main managed to avoid the worst of the fallout from the financial crisis.

Cullen though is not prepared to snack out on schadenfreude at the expense of the Irish banks. This is no surprise; he is a former ICC Bank executive and knows a number of executives in the other banks.

Frank response

But Cullen has a frank way of communicating and almost every subject I bring up he quickly responds to, without falling back on the default position of others in his industry -- "that issue is ongoing''.

Investec is celebrating its first 10 years in Ireland and next week it hosts a conference on niche investing, attended by many of its more senior investment gurus. Cullen says the bank's presence in Ireland has been nothing but positive.

Positive yes, but also different. Investec in Ireland has always done things slightly differently to the Irish banks. For example about seven years ago, Cullen explains, the bank pulled out of Irish corporate lending entirely, while others stayed in. "The pricing was just too competitive, we just weren't making a return,'' he explains.

Since then the bank has concentrated on foreign exchange, derivatives, treasury and, yes, some property lending. The bank has Irish clients and international clients, many of whom link with the company from their offices in the IFSC.

The Irish bank employs 110 people, but would like to employ more, if a bolt-on business could be identified.

"We would be interested in expanding, but we haven't been able to do any sort of acquisition, and that has been mainly down to price," he explains. If it happens it will be a "private client, fee generative'' type of business, he says, but so far nothing has been a perfect fit.

In fact, Cullen is surprised at the lack of opportunities out there and believes many Irish companies are simply not prepared to sell at current values. "We are open to looking at profitable opportunities though, but they would have to sit with what we do now,'' he states. In the meantime growing market share will do instead.

"It has surprised us how few assets have come up for sale, we're not seeing it yet," he says. This may be because the recession is not fully over yet.

"I think we are at the bottom, but the bottom is going to be here for a little while longer. It's a little like the Leaving Cert -- you know you have failed, but now you just want to get it over with,'' he remarks.

As tends to be de rigueur in his industry, Cullen would like to see more positive press coverage, but has a wider point to make than just whining about the fourth estate. "I think we are spending too much time as a country just talking to each other, when the real and crucial audience is elsewhere, outside the country,'' he says.

He says the international and traded sector is performing well and yet their stories are neglected in the narrative about the recession. "They must be thinking why does nobody ever come to interview us,'' he laughs.

Investec in Ireland is planning to roll out a series of investment propositions over the next few years, including opportunities for investors in aircraft leasing and China and Africa. "We're preparing the groundwork,'' he says. "None of them are for today, but we are putting down seeds and, in time, clients will see that we are about far more than foreign exchange.''

He says Irish investors have lost their shirts and several other items of clothing over the last three years and they will need time to re-enter the investment world again. "We've all been stung badly by not having a balanced portfolio,'' he remarks. He says it's no surprise that cash is the asset class of choice at present.

Lack of balance

This lack of a balanced portfolio was one of the reasons for the property crash and this crash has left Cullen and his bank somewhat chastened, but wiser. The bank has a planning and development land book of about €180m. It's a small amount of money, mere chicken feed, when set alongside the exposures at AIB or Anglo. But that doesn't mean Cullen is trying to play it down.

"Look, it is suffering in exactly the same way as the loan books at other banks. We are replicating all the issues, from security issues to poor analysis on our part.

"It is just as inconvenient to us as other banks and absorbs so much management time,'' he concedes. But the numbers are still so much smaller, the largest loan is €20m, while the average size is between €5m and €6m.

Cullen would prefer not to discuss the precise writedowns on the loan book, but about a third looks set to be written off or impaired at this point. What makes these figures smaller than those at the Irish banks is the fact that Investec is not in NAMA.

"We are not a forced seller, we can manage these things a little differently,'' he states. "We just try to get the best possible solution for the bank and the customer as we can.''

HE won't be rushing back into the development land sector anytime soon. "There were faults with the whole process, at all levels, I would be very reluctant to go back into planning and development lending. If you look at the risk and reward ratios, they were just way out of line.''

Unlike some of the property cheerleading which sometimes passes for informed comment in Ireland, Cullen is far more circumspect about predicting a recovery in prices.

"Well what have you got? Declining incomes, oversupply, forced sellers, credit going into more employment-intensive industries. None of that gives me a great sense that prices will rise,'' he comments.

Cullen says Investec is not going to enter retail banking here either. While the lack of an infrastructure is one thing, he wonders whether existing players can even turn a profit.

"My concern as a banker is that the raw material used by banks here is becoming more expensive, but the pressure is also on to keep loan rates low, that would be my concern,'' he says. "It will be difficult for any Irish-based entity to generate an adequate return -- that would be my concern,'' he says.

Irish Independent

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