Two decades of effort by Ireland wasted by crisis
It is important that countries and taxpayers are not again expected to bail out the financial system when banks make risky bets that come undone. By Donal O'Donovan
AS Irish banks prepare to downsize their operations, they could learn a thing or two from Dubliner John Hourican -- an accidental banker who has just gone through the same process at Royal Bank of Scotland following the British government's reluctant takeover two years ago.
The 40-year-old was one of the fresh management team brought in two years ago to turn around Royal Bank of Scotland after Fred 'The Shred' Goodwin brought the lender to its knees.
Hourican, who trained as an accountant in Dublin and shares the same name as his Bord na Mona chief executive father, has clearly been thrown by the depth of the crisis here in Ireland.
"In a way Ireland feels identical to how it did in the 1990s, as if two decades of effort have been wasted. Maybe not in terms of infrastructure -- but in terms of prospects for people there is a lot to do," he said.
Significantly that's when Hourican himself left Ireland, initially for two years in Hong Kong with his then girlfriend and now wife. They stopped in London "on the way back", where he eventually joined Royal Bank of Scotland, replying to an advertisement in a newspaper.
If he's down about the latest crisis Hourican is upbeat about the quality of Irish workers he has encountered here and abroad.
"Irish people tend to fit in anywhere. The workforce is not just well educated; their attitude to work is excellent. We need to get back to celebrating that."
Hourican is in a better position than most to judge how well Irish staff perform relative to other nationalities; he manages 18,000 staff in 39 countries, who are responsible for lending hundreds of billions annually to industry and to countries, including around 12pc of all global bonds. It's a huge role for somebody who describes his career to date as largely accidental.
Generally media shy, slim banker has a reputation in banking circles for a low-key personal charm.
In fact, his interview with the Irish Independent threatened to be completely turned on its head as he pumps the interviewer for views on the situation in Ireland and about life in Dublin.
Hourican, who spoke to this newspaper on a visit to his home city to meet clients, refused to be drawn on the rights and wrongs of the national and bank bailouts under way here. But they are clearly on his mind, and he is adamant the old norms of investing have to end.
Taxpayers, here or abroad, can no longer be expected to absorb the losses of failed banks, he believes.
"The scale and spread of the crisis means all norms have been tested."
Like many taxpayers here and the French and German governments, he says bondholders of banks must not be allowed to escape the consequences of banking failures.
"It is important that countries and taxpayers are not again expected to bail out the financial system. Banks operate internationally but bankruptcy is national. There has to be a debate about that," he says.
His view is nevertheless more nuanced than many here and abroad.
"Bondholders' preparedness to absorb losses is going to be a very important part of the debate," he said.
But he warned: "It might take five to 10 years to fully implement that. But the debate certainly needs to begin, even if the debate can be unpalatable to certain constituencies."
Hourican was a surprise candidate in the City of London when he took over Royal Bank of Scotland's investment bank in 2008 following Goodwin's replacement by Stephen Hester.
Hester had been brought in as chief executive just weeks before when the UK government seized majority control of the bank to prevent a financial meltdown.
The Ulster Bank parent, once a poster boy for the success of the City of London, had effectively collapsed under the weight of a €70bn acquisition of ABN AMRO finalised just before the collapse of Lehman Brothers. Unusually, Hourican was an Royal Bank of Scotland insider when he took the job.
He was part of the team preparing a detailed report on the bank for the new shareholder and his forensic skills and cool head in the weeks leading up to the state takeover are reported to have marked him out to become a key figure in the new leadership team.
If he was little known to the market he had a huge awareness of his own bank's faults and strengths gained as both a frontline banker and strategic adviser to the earlier management team.
He took control with a set of targets that is about to become familiar to Irish banking executives.
His orders were to slash the amount of risky assets on the bank's balance sheet to protect taxpayers and at the same time prepare the way for the government to sell its majority stake.
That meant a return to profit without a return to boom time lending habits.
In just two years Hourican and his team have slashed the size of the business. It was a tough process, not least psychologically because it meant reversing a strategy that had seen RBS grow in leaps and bounds from Scottish lender to global banking giant in a little more than a decade.
It also meant job losses and Hourican says he's been conscious of the human dimension throughout.
"The process was rapid but I'd characterise our approach as clinical, not brutal. It's important never to take a decision lightly that affects people," he said.
Nevertheless the balance sheet -- the amount the bank has available to lend -- has fallen from £820bn to £422bn.
The global markets business closed down or sold some of its most famous divisions and has ruthlessly pruned client lists to identify and focus on profitable, long-term relationships.
Assets to be worked out over time were hived off into a non-core business with its own managers -- a kind of bad-bank within a bank.
Hourican clearly believes it was the right approach: "The core and non-core split means managers in the core can focus on the future and creating value around the banks customers. Their colleagues in non-core are separately focused on the managing to zero of that part of the bank. It's a different skill set."
Despite the crisis in his own bank and the one taking place outside the boardroom here in Dublin, he is keen to leave on an optimistic note:
"We can't allow people to talk the economy down, it becomes self fulfilling. People have to become prospective not retrospective, this is a young nation and there is a desire from Irish people here and around the world to see things improve," he said.