Tuesday 23 January 2018

Innovative bank where bonus is not a dirty word

Financial giant Investec believes Ireland is a good place to invest and by year's end, it will have completed a top-secret acquisition to increase its footprint here. By Laura Noonan

IT'S probably fair to say that South African specialist bank Investec and Ireland's financial crisis got off on the wrong foot.

In the autumn of 2008, when the Government infamously dug out our banks by guaranteeing their deposits and other liabilities, it also dug the knife into foreign-owned banks like Investec.

"We found it very difficult to compete in the corporate market, we were at a crossroads," says Investec's head of treasury Aisling Dodgson, showing considerable restraint.

Some would have been tempted to flee the Irish market with a (somewhat justifiable) chip on their shoulder; Investec has instead found a way to forge a better relationship with this financial crisis of ours.

Work on a "significant" acquisition is under way and a deal is expected to be done before the year is out, Dodgson says. She's keeping schtum on the details, but with the market in the state it's in, the price is likely to be advantageous.

A solid retail deposit base has been built up and is growing strongly, as savers flee Irish banks and are tempted by "hugely successful" products like one that allows people to get their money back in Danish kroner should the euro collapse.

Investec has also taken fresh strides to boost its brand, beginning with a landmark conference for its 10th birthday last year and following up with another one yesterday, where about 300 delegates gathered to hear experts from the Investec global family.

"We see Ireland as a good place to invest now," says Dodgson. "The right time to look at the market isn't always when it's on the way up, sometimes it's good to look at a market when it's in a downturn. . . We'd like to increase our footprint."


The most tangible sign of that footprint increasing will be the top secret acquisition which Dodgson believes will be completed by the end of the year, but Investec also remains focused on organic growth.

When the guarantee first came in, the bank's deposit base was overwhelmingly weighted toward corporate and institutions. To counteract the guarantee's effects, Investec had to build a retail deposit book almost from scratch.

"We launched into the market not knowing was there an appetite for another deposit player," recalls Dodgson.

They soon got their answer, as the public became increasingly nervous of Irish banks and took solace in the £50,000 UK guarantee scheme that Investec could offer as a branch of its London parent.

Some foreign banks have relied almost solely on their ratings or guarantee schemes to lure deposits, but Investec is taking a more "innovative" approach, most notably their Danish Kroner Deposit Account.

The account allows people to invest a minimum of €20,000 for three years. At the end of the term, they can keep their money in a Danish Kroner account, convert the Kroner into another currency or take their cash back in euro, at today's exchange rate. Interest is paid at a rate of 1.25pc a year.

"We've had a huge response," says Dodgson, who attributes the product's popularity to the fact that savers can have the reassurance of reducing their exposure to the euro without actually taking an exchange rate risk now by converting the cash.

Anyone who actually puts their money into Kroner now, or into any other currency, to escape the euro will bear the real risk of currency fluctuations. In the Investec account, you only have exposure to the other currency if the euro actually goes down.

Dodgson is quick to point out that Investec hasn't gotten into this business to scaremonger about the euro or profit from the single currency's difficulties.

"It was driven by customers at every level coming to us saying they're worried about the euro, they're worried about their money," she says. "Our house view is that the euro will not break up."

The Kroner product closes on October 14, but Dodgson expects to launch similar offerings again "if the demand is there".

Investec is doing other things to ensure "loyalty" from its fledgling depositor base, including sending every single customer a book as a Christmas present.

The past few years have also seen some of Investec's corporate and institutional depositors come back, as the investor community fell out of love with an Irish bank guarantee that was bigger than the Irish State.

Other recessionary boosts include the availability of lots of bank staff who've left their positions at struggling Irish institutions. Dodgson says Investec "isn't prejudiced" against potential employees who've worked for stricken banks, since "good people are good people".

Those who end up in Investec will find themselves in a bank where bonus isn't a dirty word -- Investec is open about rewarding its employees' performance and has a policy of paying in the top quartile of its industry.

Pay cuts and pay freezes could easily have been pushed through the Irish units in recent years, but Investec's 110 staff escaped because the bank "looks after its staff" and values loyalty, Dodgson says.

For all its bullishness, Investec is remarkably coy on the numbers front. Dodgson says retail deposits have grown by "several multiples" since late 2008, but won't say how much they now total.

The only number she's willing to give up is that 60pc of the bank's (undisclosed) deposit base is now retail.

The reticence seems to be company policy, reflecting a 2008 decision by Investec's board to no longer release results by territory. The last detailed Irish figures are for the 2007/8 financial year, when pre-tax earnings grew 38pc to €33m.

As at March 31, 2008, deposits were just over €1bn, up 17pc year on year -- a not insignificant amount, but equally a drop in the ocean against the €175bn of Irish private sector deposits across the banks at the time.

It's this relatively small presence that fuels some of Dodgson's confidence in the future. While panic has driven Ireland's savings ratio to an artificial high, Investec reckons it's well positioned to survive a shift in that trend.

"We have a tiny percentage of the deposit market," says Dodgson. "We can still grow."

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