Danske's man in Ireland banking on a new beginning
BUSINESS INTERVIEW:Terry Browne, head of the newly rebranded Danske business in Ireland, arrives into a meeting room in his IFSC office in Dublin after a busy few days. The office has just got a fresh lick of paint and the reception area has been switched around as part of the bank’s latest but more significant restructuring.
The career banker has been busy writing personal notes to people he worked with at the former National Irish Bank for more than 30 years who have left in the latest overhaul at the Danish-owned lender. The bank has just closed its branches, 27 in all, making 100 staff, almost one in four people working at the bank, redundant. This leaves 366 staff.
The bank was also rebranded to the name of its parent, Danske, along with its northern counterpart, Northern Bank.
NIB had already undergone major changes under Browne’s predecessor, chief executive Andrew Healy who left earlier this year, reducing staff numbers from 652 at a peak in 2008 to 440 and branch numbers from 66 four years ago to 27.
Cash and cheque handling, a high cost in the business, had moved to the State’s post offices through a joint venture deal with An Post.
Browne still sees the newly revamped Danske operations in Ireland as “a full service bank”. The branch closures stemmed from the bank’s attempts to make the personal banking end of the business more profitable, he says. The bank had noticed a change in customer behaviour – they simply weren’t using the branches as much as they had in the past.
Given the growing number of problem loan cases coming into the branches, Browne found that they had become 27 different “administration centres” with “27 different ways of handling challenged credit cases and different queries coming in”.
Danske decided to centralise administration and services. Problem loans – €4.7 billion of total lending of €8.4 billion – were also moved to a “non-core” (banker-speak for unwanted) centralised unit for work out over time by a dedicated team. Unsurprisingly, commercial property and buy-to-let loans make up the bulk of the bank’s non-core or internal bad bank.
Face-to-face meetings with customers is still deemed essential and Browne believes Danske can accommodate this via nine new “advisory centres”. Four are in Dublin – at the IFSC, Tallaght, Swords and Stillorgan. The others are in Waterford, Athlone, Cork, Limerick and Letterkenny. Eighty per cent of the bank’s business is in the greater Leinster area.
He believes the more limited face-to-face contact between banker and customer can work, supported by new technology allowing customers to do their banking with smartphones, computers and tablets.
“It was a very expensive bricks and mortar presence which wasn’t scalable,” he said. “With only 27 branches, we were never going to scale from there and to grow organically would have been too expensive. The vast majority of banks are rationalising their physical footprint.”
AIB, Permanent TSB and Ulster Bank are all closing branches as banking becomes leaner after the bloated years of the property boom and the sector deals with the high cost of capital and funding, and reduced loan demand.
Danske is taking the changes a little further by concentrating more on the corporate and institutional clients (rich companies) and high net-worth to private clients (richer customers).
The refocusing and restructuring of the business is aimed at pushing the bank’s operations down the costs table and up the income table to drive that all important net interest margin from a squeezed level.
Browne expects higher capital requirements in banking over the coming years to make the corporate bond market a cheaper and easier place for companies to raise money. Danske is positioning itself towards corporate clients with this in mind.
Danske was one of five banks selling the €600 million bond issued by the ESB in September. The bank is also helping the State’s efforts to get back into the markets as one of the primary bond dealers used by the Government to sell sovereign debt.
On the personal banking side, Browne estimates that the branch closures and associated redundancies will reduce costs by between a fifth and a quarter.
“There is obviously a place for a bricks and mortar presence on the high street but we feel that there is no reason why it can’t be one bricks and mortar presence for multiple financial institutions. An Post is starting to fill that role,” he said.
Browne has no problem with AIB or other rival financial institutions using the post offices as Danske is doing, though he says some customers may be reluctant to bank at a post office.