'Awful lot of the pressure, the decisions' fell on Fingleton

Danny Kitchen doesn't do boring. The non-executive chairman of Hibernia REIT, which was admitted to the Irish and London Stock Exchanges on Wednesday, has had a career that has taken him from putting the finance together for one of London's tallest skyscrapers to trying to keep Irish Nationwide Building Society afloat in the thick of the financial crisis.

In the Grand Canal bank offices of WK Nowlan, the property consultants who helped put Hibernia together, he is ready to discuss his latest role chairing the real estate investment trust which has raised €365 million to invest in Ireland from backers such as George Soros' Quantum Funds and Putnam Investments, which has $125 billion in assets under management.

Last August, Kitchen was asked to be its chairman. “It popped up and I said yes. It sounds interesting. For me that is what it is about, I don’t want to do anything boring.”

Kitchen believes Hibernia will begin investing in Irish property at an ideal moment.

“The vast majority of property in Dublin is owned or controlled by people who don’t really want it – Nama, the banks. That gives you a great pool of potential assets to buy,” he says.

“I have never seen a market where so many people are trying to get out of real estate. It gives you a great opportunity to buy a really good property portfolio.

“The big challenge will be deployment of the money we raised. You can never discount someone coming in and looking at a property with a completely different perspective when bidding. That is why property is interesting.”

Hibernia will focus initially on the Dublin office market. “The rest of the country is going to struggle,” says Kitchen. “When is the earliest you can conceivable see a new building coming out of the ground? It is probably [20]17. It is straightforward: if there is more demand than supply, then rents are going to go up.”

Deploy money
Kitchen did 60 investor meetings to help Hibernia's team raise funds along with father and son Bill and Kevin Nolan, and Frank Kenny, the founder of the Willett Companies, in America.

International funds, says Kitchen, see Ireland as the “golden child of the recovery”.

"They are saying, 'How can I play this?'. And there is not that many ways. They can buy Bank of Ireland but, other than that, the two REITs (Green and Hibernia REITs) are the obvious way to do it.

“The first sell was to convince them on the Irish property story. The second thing was the credibility of the management team. The third thing was how quickly can you get the money out. Those guys can deploy that cash elsewhere, so they need you to be convinced that money can be deployed pretty quickly.”

In the end, says Kitchen, Hibernia was two-and-a-half times oversubscribed. Hibernia REIT will initially offer a “short-term kick” as Dublin property prices rise, he believes.

“Really what you want though is a long-term income play that is going to deliver 6, 7, 8 per cent per annum, a clockwork cash machine.

“Initially, the idea is to build up a reasonably well-balanced portfolio between offices, retail and distribution sheds.”

He believes WK Nowlan has the skills to “winkle out the product”. “We have half a billion to spend when you add in the debt. That will keep us busy.”

Kitchen grew up in east Belfast and his father worked in an aircraft factory.

“I come from a fairly working-class background. I have no particular silver spoons or anything around!” he says.

After school, he went to Queens University to study physics and his first job was building guided missiles in Short Brothers in Belfast.

“It was alright,” says Kitchen. “By the time I started the job, I had decided this wasn’t really going to work.”

Kitchen was ambitious. He felt you had to be 50 to be an engineering director but you could become a finance director by 30. “At 21, that was within striking distance,” he laughs.

He joined Northern Ireland Electricity and trained as an accountant before working in Northern Bank and then joining Invest Northern Ireland. "It got me interested in investing rather than keeping the score."

In 1980, Kitchen moved to Dublin where he worked with IBI, the corporate financiers, for the next 14 years. It was deal after deal: the flotation of the Kerry Group, the privatisation of Greencore, Irish Distillers, Waterford Glass and many more.

'Adrenalin buzz'
One of the more complicated deals he worked on was helping to rescue beef baron Larry Goodman's companies after they got into trouble in 1990 and needed a radical debt restructuring.

“Larry was amazing. Everyone outside business thinks about money but, for him, money was the score. That was my impression,” Kitchen recalls.

“The business bit was in the blood. He was worth hundreds of millions and, within eight months, was negative tens of millions.

“I had seen people buckle after losing considerably less than Larry lost. Larry’s attitude was: ‘Right, how do we get the train back on the track!’ I have a lot of time for him.”

Kitchen found his work with IBI gave him a “great adrenalin buzz” initially but “over time I found the deals I was doing . . . I was sort of thinking, how did that work out?

“I found myself having more interest in following transactions rather than just doing the next one and the next one”.

Kitchen realised he was in a “fur-lined trap”.

Stephen Vernon of Green Property asked him to become his finance director. The two men knew each other as Kitchen had advised Green in the past on tricky situations.

“All Green was, was a continuation of doing deals. The difference was the deals were joined up. It wasn’t as difficult as I thought it would be mentally to adjust!” he says.

For the next eight years, Kitchen worked with Vernon, helping to build a company with a balance sheet of IR£100 million to about £2 billion.

In 2002, when Vernon decided to do a buyout of Green which had struggled to reflect management valuations in the stock market, Kitchen decided it was time for something new.

“I was 50 at the time. I just thought, deconstructing all that [Green had built], what was the fun in that? Yeah, you make some money, fine. There is only so much money you can spend.”

A three-week family holiday to Peru to climb the Machu Picchu trail would give him time to think about options in life after Green, he felt. Just before he left, he got a phone call . . . from Gerald Ronson.

It was October 2002 and the legendary British property tycoon asked Kitchen to join him as his deputy in his company Heron International.

“I went over and met him and the rest, as they say, is history,” says Kitchen. “I didn’t know him at all. It was great. I have a lot of time for Gerald. He’s a huge personality. He plays a bit on the fact that people are afraid of him.

“He has a great sense of humour which you don’t necessarily get from the outside. It is a wicked sense of humour. I never had any difficulties with him.”

In 1990, Ronson had been jailed after the Guinness share trading fraud. “He basically said what has happened has happened and move on.

“It was definitely illegal,” says Kitchen, but not unprecedented at the time, and everything was made worse by it becoming highly politicised.

With Heron, Kitchen led the £375 million fundraising required to build the 775ft Heron Tower skyscraper in London. He also worked on the acquisition of Club Meds in Europe and offloaded various sites to eager Irish buyers.

But, after five years, Kitchen was tired of the commute to London and departed in March 2008 at the age of 55.

Kitchen went back on the board of Kingspan, having stepped down in 2003 at Ronson's insistence.

Questionable expenses
"Gerald demands absolute loyalty. You have to be there 100 per cent of the time," Kitchen explains.

Then the financial world fell apart and, in 2009, Brian Lenihan, the then minister for finance, offered him the job of chief executive of Irish Nationwide. Kitchen agreed only to become its chairman.

“You realised quickly there was a lack of structure in the place, proper management structures [in Irish Nationwide],” he says.

“An awful lot of the pressure, the decisions, fell on Michael [Fingleton]. I would have thought too much personally for anybody, not just for him.”

What about the Ernst & Young investigative reports which raised serious concerns about corporate governance in the society?

“They found something like €72,000 of questionable expenses . . . some of those were defensible, and some of them weren’t,” says Kitchen.

“It probably was out of the ordinary but they were the times that were in it. To be spending lots of money to come up with 72 grand of questionable expenses! I have to say that is a complete waste of money.”

But the reports also found that loans were given out for unclear purposes and that the level of paperwork was often very poor.

“Systems and structures were a joke,” Kitchen acknowledges. “They just didn’t exist. It was all in Michael’s head. That was part of the problem.”

Why didn’t the society’s old board stop things? “I don’t know. I wasn’t there, so I don’t know what the circumstances are.

“Anecdotally, I know bankers at that time were basically saying we need the power to give out loans pretty much instantaneously, within a couple of hours. That was an across the board problem. It wasn’t just the Nationwide.

“Everyone says the bankers were this, that or the other. The bankers were reacting to pressures from their investors – ‘why isn’t the share price above last year?’

“The reality is you can’t grow banks the way they did here. They are just not animals that can grow that quickly. The only way [to do that] is to take excessive risk.”

Michael Fingleton received €1 million from the society in the year before he retired in 2009. Was this acceptable?

“Well he had a contractual right to it. That was it. It wasn’t a performance bonus. It was a retention bonus.

“Fingleton certainly says he had an understanding with the government . . . The government reneged on the understanding, so he didn’t give it back. That is the position as he sets it out.”

What was the deal and how did Brian Cowen, the then taoiseach, get involved, as Fingleton suggests?

“I don’t know the detail to be honest,” says Kitchen, who doesn’t expect the State’s bank inquiry next year to reveal much new.

“I mean, what do they hope to find? Bank boards were too loose with the credit, management were too gung-ho! You could write down the conclusions now, it is not as if they are going to find out anything new.

“The regulators? What were they doing? There is nothing that isn’t already in the public domain. You never know, but I doubt it.”

Kitchen acknowledges Nationwide did lend to politicians but contends: “Politicians have to borrow from somebody.

“I don’t honestly think there is anything left to come out because you can be assured once it comes into the political arena, if it is advantageous to somebody, it will come out. Anything that is out there is out there! Anything that could have been leaked has been leaked.”

Lightening rod
Were any of the loans to politicians unusual? "Not that I am aware of. They were mortgages largely, from what I remember. I didn't get involved in it. They were there when I arrived and probably there when I left.

“Never had a politician in to see me the whole time I was there. The basis of the credit? Again, there wasn’t enough records around to make a judgment on it.”

Kitchen says Fingleton was a “lightning rod” for blame, but that the crash was bigger than one man.

"If you mother or father invested in AIB or Bank of Ireland shares and lost all their retirement savings, who would you blame?

“The only people I really feel sorry for in the whole process are old people who invested in bank stock thinking it was safe.

“The other group was the first-time buyers, who always get caught in a bust. They think the train is leaving the station and they have to get on it.”

And the taxpayer?

“That is a subsequent issue. We have all had to take the pain for that. It was a greed fest wasn’t it? Everybody thought they’d make a lot of money and they didn’t. That is commerce, you get it right and you get it wrong.”

Hibernia, says Kitchen, was part of the Irish economy returning to normal. “It helps to have long term money in the Dublin property market.

A stable investment market will help give confidence to new builders which would help create the employment required for a real recovery.

“Reading the cycle, that is how you make money [in property]. You need a bit of luck with these things.”

And to always keep it interesting.

CV: Danny Kitchen
Name: Danny Kitchen
Position: Chairman, Hibernia REIT
Age: 61
Education: Degree in physics from Queens University
Family: Married with two children
Lives: Leopardstown, Dublin 18
Hobbies: Following Arsenal. He is a season ticket holder at the Emirates stadium.
Something you would expect: He finds accountancy boring.
Something that might surprise: At 21, he designed guided missiles for Short Brothers in Belfast.