Taking a global view of Irish business
ALAN DUFFY became head of corporate banking for UK-based banking giant HSBC during a golden period in banking in Ireland. The economy was roaring, the property market was booming and bankers were rolling in big profits, pay and bonuses.Duffy took over the job in September 2006, but he couldn’t partake in the credit boom enjoyed by his domestic rivals for one simple reason – based on HSBC’s measures of what constituted good banking, he wasn’t permitted.
HSBC has traditionally been conservative about property lending; it only lends on property where the loan-to-value ratios do not exceed 65 per cent.
This meant Duffy’s team could not compete with the 85 per cent loan ratios being offered by the Irish banks.
“It was always a temptation but, frankly speaking, what was being done on the ground here in terms of loan-to-value, pricing, concentration risk, was so far outside of the group parameters that you would just be going out on a limb,” says Duffy, sitting in HSBC’s Irish offices overlooking Grand Canal Square in Dublin’s Docklands.
“We were unable to get into a lot of transactions being done between the existing banks on the ground at the time so we decided that internationally active Irish corporates ... we decided there was a very active sector in that.”
The decision was more about identifying a niche than being told to avoid a particular sector.
“I was not warned against getting into the real estate side. I was told to stick to the knitting and the knitting for HSBC is international banking and cashflow businesses,” says Duffy.
“It [property lending during the Irish boom years] made no economic sense at all and we were interested in hiring, or attracting to the group, relationship managers with broad experience, not a mono-product focus on real estate, so as to understand the trading fundamentals of Irish companies.”
Duffy’s experience in banking was never in property. He had even seen how the Scandinavian countries recovered from their property crash of the early 1990s when he worked for Canadian lender Scotiabank out of Dublin financing businesses in Norway, Finland and Sweden.
His work brought him in contact with shipping companies in Norway and Denmark, pulp and paper businesses in Finland and oil and gas exploration companies in Norway.
“The banking sector in Scandinavia was in a tough place at the time, but it came through very solidly, certainly in Finland and Sweden,” says Duffy.
“Norway was always relatively insulated from things because of the oil revenues and the fact that they were parking a lot of the oil revenues in their sovereign wealth fund, which is huge today.
“I worked in cyclical industries, which was a great learning curve that gave me exposure to a hugely diverse range of industries.”
Although it is Europe’s biggest bank, and one that survived the global banking crisis better than most international banks, HSBC is not very visible in Ireland, certainly not compared with elsewhere.
Duffy speaks with some delight about the bank’s sponsorship of the 2009 British and Irish Lions rugby tour to South Africa. Irish fans wore the distinctive red jersey carrying the bank’s name.
The captaincy by Munster and Irish international Paul O’Connell also raised the brand’s profile here.
HSBC employs 420 people in Ireland, most of whom work in funds management through the bank’s global banking and markets or “HSS” division. This part of the operation has recently attracted business from HSBC in New York.
The Irish business is moving out of insurance and private banking, a division HSBC’s then group chief executive, Mike Geoghegan, opened in Dublin in April 2008. The move now is towards fund management and HSBC’s corporate banking business, where Duffy manages 35 staff in Dublin.
There was no reason specific to Ireland why the private banking unit in Dublin closed. Duffy says that HSBC withdrew from retail banking in about 20 countries and the Irish private bank was “caught up” in the contraction of the private banking division in Canada.
Duffy says that HSBC measures the performance of single businesses across the group globally on a “five filter” basis – the ratio of assets to deposits; the return on equity; how cost efficient the business is; “how connected you are to the rest of the group”; and materiality as measured by profit before tax.
HSBC chose to open a corporate banking division in Ireland because many of the large Irish companies with a global reach had “touch-points” with the bank across the globe, he says.