Friday 19 January 2018

Kane banks on building up new venture

The former Irish Permanent chief executive has big plans for Finance Ireland, his alternative lender

Billy Kane, the former chief executive of Irish Permanent, is out to grow Finance Ireland into a ‘very large’ non-bank lender
Billy Kane, the former chief executive of Irish Permanent, is out to grow Finance Ireland into a ‘very large’ non-bank lender
Gavin McLoughlin

Gavin McLoughlin

As a schoolboy Billy Kane used to sell sticks of rock to tourists visiting Bray. Years later he walked away from his job as chief executive of Irish Permanent to set up a niche financial provider.

When the crash hit in 2008, he considered packing it in, but after a successful meeting with Close Brothers in Birmingham Airport the business was revitalised, starting its car finance arm in partnership with the UK merchant bank.

Now Kane (62) sits at the head of a company with ambitions to lend €400m into the Irish economy this year. Bond giant Pimco has been persuaded to take a significant shareholding, and the company is eyeing a potential IPO in three-to-five years.

The company provides a variety of lending products including asset finance, commercial mortgages, and car finance.

Pre-tax profit almost doubled to €6.3m last year, with lending volumes up 82pc year-on-year. It was an eventful 2016, with the Ireland Strategic Investment Fund coming on board as a shareholder, an agri-focused joint venture launched with Glanbia, and wholesale funding secured for commercial mortgages.

Now Kane has to figure out how to keep the positive momentum going.

"We would love to make some acquisitions, the difficulty we have is that a lot of the smaller banks that were here with their subsidiaries have all left us. If you look at the Irish market, and you look at what opportunities there are, there may be opportunities in car finance and limited opportunities in SME lending," says Kane.

"I guess my own belief is that some of the boutique players, as they develop out their business over the next couple of years they may well become targets and they may well afford us opportunities...[but] we can't identify something which makes us say we'd like to buy that," he added.

"Firstly, we look at the areas we're in and maybe expanding our footfall in those. At the moment we will lend €100m in commercial mortgages this year. It's a very generic product and we would obviously like to expand that to look at maybe doing more," Kane said.

"For SMEs, while we're in asset finance at the moment, we are certainly looking at providing working capital finance to SMEs ... I guess the big one that we're currently looking at is the whole residential mortgage piece. The numbers are becoming quite exciting and there's very few players, apart from the main banks."

Kane knows a lot about the main banks, having been a senior figure at what is now Permanent TSB for the best part of a decade.

He became chief executive of Irish Permanent, but after the merger with Irish Life he decided the job wasn't for him anymore, leaving at the end of 2001.

Having helped build Woodchester from a tiny business to a market leader in car finance, and then doing the same with Irish Permanent's car finance arm, he was eager for another taste of business building and set up what is now Finance Ireland.

"I just like building businesses from the ground up, it's a challenge I like. Other people might have a mindset that they like the complexity of running very, very large businesses, I tend to like building businesses as against running a very large complex business.

"Irish Life was a semi state - a great business - in another area of the [financial] business but they had a different mentality to what we had in Irish Permanent. Obviously, strategically it was a good fit - but the whole business now was moving a lot slower. And it made me feel: 'Do I want to do that or do I not?'

"I always saw myself as being slightly entrepreneurial, and I also saw that there were opportunities. I really enjoyed working in Irish Permanent ... I enjoyed the hell out of it, and was well paid.

"I got to the point where I guess if I didn't do it when I was the age that I was, I'd never have done it.

"I just said 'I'll start off by identifying niches that the big banks aren't good at'. The whole banking crisis in 2008 came into middle of that and that certainly disrupted my thoughts, to say the least."

The business was initially focused on so-called equity release for the over 65s. This involves buying a share in a person's home for a lump sum and getting a cut of the proceeds when the person dies and the house changes hands.

"We were a very happy band of people, there was only a tiny number of us. The challenges there were the usual ones: it was new to the market, there was no funding available, all those good things," Kane says.

"We got through all of those. We got our funding in place. We launched our product. It was always going to be very small in the Irish market.

"If you look even to the UK today, which is a much bigger market than Ireland, that product was always going to be small and niche. But it was fun and it was new and we enjoyed it."

The company listed on the UK Alternative Investment Market, but when the crash hit, the securitisation market died.

Kane was forced to take the company back off the market. Finance Ireland was, to use Kane's words, "in limbo" until the Close Brothers deal was sealed. Some small UK-based shareholders from the company's time on AIM remain.

"You go to that period of time where you try different things. So I tried lots of smaller investments in a very kind of minor way, some with friends.

"We looked at recycling phones, which we did in Ireland and Spain. And we looked at some other smaller operations. They were good fun, intellectually you enjoy them.

"But you come around to realise that unless you know a fair bit about something, it's hard to contribute. So you tend to go back either to hurling or Gaelic or rugby, and forget about the handball. Because you can't play all four well," says Kane.

His 'Eureka moment' - the moment that made him think a crash might be coming, occurred in 2007. "We were in the UK and we managed in principle to get wholesale funding facilities, and we were getting the equivalent of nearly €100m of debt for €3m of equity. And when I was coming back on the plane, I reflected and I said: 'oh dear, I wonder'."

The crash put serious strain on Irish SMEs. Some ran into difficulty with the banks, hindering their ability to get bank finance in the future.

For those that survived, structures like asset finance or invoice discounting became an alternative. That's benefited Finance Ireland but there are dark clouds on the horizon - Brexit being the darkest of all. Asked about whether he can 'Brexit-proof' the business, Kane says quite simply: "You can't."

The commercial mortgage end of the business is less exposed, but if exporting SMEs get hit by tariffs, there could be a rough ride ahead.

"Post the actual shock result of Brexit we had two very poor months in SME lending. People certainly drew their breaths.

"It's interesting, we were talking to colleagues who were in the same business in the UK, and they said they had the slowdown two months coming up to it, which was peculiar.

"Unemployment is falling, inflation is low, interest rates are low, and I think we will definitely have a purple patch for the next two years. After that, depending on how Brexit goes, it's very hard to see how it will be good for the country in all reality. You would hope that while the domestic economy may slow, it wouldn't be catastrophic.

"Now we can't stand still for two years, because then nobody does anything. I guess all we can hope for is that we get a soft Brexit."

The company has agreed to introduce a new long-term incentive scheme for staff as it looks to the future.

The problem, for now, is that there isn't really a market for the shares awarded, as the company is private. But it should motivate staff to help create a market - and Kane has plans to do something about that."Our time frame, and you can never really look at that because it depends on the economy, [but in] three to five years I guess we'd be looking at either some form of an IPO or some other form of a trade sale," Kane said, adding that the company would likely list in Dublin and London.

Will Kane be there to see that happen? He's coming towards the State pension age, but he's not thinking about retirement. "We now have proven that we can be the biggest alternative lender in the country, and I guess we've also proven that we can compete in our own way with the larger lenders in the market ... we're only starting, which sounds strange.

"I guess our future is to build out the business to become a very large non-bank lender ... the business is not about Billy Kane any more, the business is about a very talented group of people that we've managed to put together to drive the business on."

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