It's day two of CYBG's tenancy of the Leadenhall Building in London, otherwise known as the Cheesegrater, and the group's Irish chief executive, David Duffy, has a spring in his step as we take a guided tour of the 15th floor in search of a good spot for a photograph.
After almost four years of toil at State- owned AIB, where he effected a major turnaround in its trading performance while grappling with a myriad of legacy issues and striving to modernise the bank, Duffy is loving life at the newly independent Clydesdale and Yorkshire bank.
He is also just back from skiing in Colorado with his daughters and partner Carolyn and looks fit and tanned.
“This phase is fabulous because it’s London, it’s a challenge,” he says. “It’s the inverse of the time I’ve had in the last few years [with AIB]. It’s very exciting, it could be unique and I have kids and family in the location. So what’s not to like?”
Duffy joined CYBG in June 2015 and his first task was to manage its de-merger from parent group National Australia Bank (NAB) in parallel with an initial public offering of 25 per cent of its stock on the London and Aussie markets.
In February, when global markets were being routed and bank shares in particular were being hammered, Duffy got the flotation away at 180p a share with a “blue-chip investor book that was four times covered”.
It was towards the low end of the price range and represented a multiple to book value of just 0.6 times but that did not matter as NAB simply wanted shot of its UK subsidiary.
Even a 24-hour suspension of the flotation to deal with an “integrity issue” caused by a downgrade from a ratings agency could not derail his IPO.
The shares are currently trading about 18 per cent ahead of the IPO price, so Duffy should be well in credit with his shareholders.
Had he stayed in Dublin, Duffy would be gearing up for an IPO of AIB, subject to ministerial approval, whenever a new government is formed. But in late 2014 he decided the four- to five-year commitment that would have been involved was not for him, and he quit in January last year.
Why was he up for an IPO of Clydesdale but not AIB?
“They were two different things,” he says. “Very, very different opportunities. The work that we had to do to create a viable IPO-able AIB was enormous. It could have happened in ’15 but it didn’t. It could happen in ’16 but that depends on the elections. It could happen in ’17 but there could be more elections; so who knows when exactly?”
Given that he would have had to stay on for at least a couple of years beyond an IPO, Duffy decided to step off the AIB carousel. “It was five years or none – and that I didn’t want to do.”
What made Clydesdale different?
“The other opportunity was to come to the UK and, instead of being the equivalent of Lloyds, come to the other end of the food chain and take a bank that was not bailed out by the taxpayer, has very strong, loyal, local brands, has a fantastic franchise that has been undermanaged, and make it independent for the first time in 100 years.
“On a dual-listed basis and set up as the largest challenger bank in the UK, [CYBG is] the only one in retail and SME that’s a clearing bank as well and with the option to consolidate the industry and create a powerful competitor to the status quo. That’s a very different, hugely opposite type challenge to what AIB was.”
Duffy insists pay was not an issue. In his final full year with AIB he earned €489,000, including a basis salary of €425,000. He was subject to a salary cap of €500,000 imposed by the Government and was not eligible for a bonus or share options.
At Clydesdale, Duffy got a £500,000 signing-on fee. His annual salary is £1 million, while he receives an additional £65,000 in car and accommodation allowances and £180,000 towards his pension. He also has £1.5 million worth of share awards that will vest after three years subject to certain targets being met, although there is also a potential clawback in the event of decisions made by Duffy blowing up in the face of CYBG shareholders.
"I have earned these kinds of economics all my life," he says. "And I only had a temporary aberration by going into AIB. But I took that job with the full knowledge of what they [the terms and conditions] were and reduced it by 15 per cent."
Did the focus on his pay bother him? “The only irritating thing was the constant noise about it. You can’t help but be human. The previous jobs I’ve had were many, many times bigger [than at AIB] and you’re willing to do it, happy to do it and engage totally and sacrifice everything in life to do it and take pay cuts and pension cuts and people still crapped on you, quite often. Or at least gave you a lot of criticism.”
Duffy insists that pay is not a motivating factor in his life. “When I took on this job I took what they paid in this market. Yes, it’s more and it’s very exciting but it’s more expensive to live in London. That equation was not one of great concern at the time. I said it openly when people asked me.”
In addition, Duffy says he was offered better-paying roles than CYBG.
“There were a couple of people in Asia who wanted to go into a joint venture as a group of principals to look at making some smart investments in tech stuff.
“There was another firm wanted me to set up in Singapore again and become chairman of their tech company. A lot of it was tech and then there was one big, big bank who wondered if I’d put my name forward. That was London based. I just declined. It was a significant role in the banking industry here but it didn’t excite me.”
Instead he chose Clydesdale, a 175-year- old challenger bank that is of a similar size and scale to AIB , if not market share. Nationally the bank’s share of mortgages is a puny 1.6 per cent, although it has outpaced the market in each of the past four years.
Regionally it is a different story with its share hitting 14 per cent in some segments of the market. Clydesdale is strong in Scotland, while Yorkshire bank is big in the north of England. To the surprise of many, given its roots, roughly half of its mortgage lending is written in London and the southeast.
Unusually for a challenger bank, CYBG has a full service retail and SME capability and it is one of the few banks in the world that can print its own notes.
But there are challenges. Its cost- income ratio is way too high at 75 per cent (AIB’s target under Duffy was 50 per cent) and its branch network needs to be streamlined. Branches will become “advice centres” and will be amalgamated with the bank’s business centres, which are currently located separately.
There had also been years of underinvestment in technology and a lack of innovation. In addition, the bank has been caught up in various mis-selling and conduct scandals, with NAB setting aside £1.7 billion before the IPO to cover these costs. Duffy has invested heavily in technology capability to reflect the fact that customers have made the switch to digital in their lives and the bank either responds to the challenge or will have its lunch eaten by a competitor, which might not be a traditional bank.
CYBG will launch a new digital platform called “B” next month. “It’s regarded as best in class . . . it’s artificial intelligence [and] understands your spending patterns and prompts you on things you should think about. It’s designed by customers, not by the bank,” Duffy says.
“The credit cards . . . you can put your own pictures on them for all we care. It’s much more of a Facebook-generation type model. The advertising is all about when life was fun. . . you were young and you didn’t worry about money. It’s a non-traditional banking model.”
In the longer term, Duffy accepts that three possible scenarios face CYBG.
Someone could try to acquire the bank. “They have before. So you make people pay the right price. I’m neutral on that: it’s a shareholder equation.”
Alternatively, CYBG could be the consolidator – it has been linked with RBS spin-off Williams & Glyn, which is run by former Ulster Bank chief Jim Brown.
“If we were to buy one or two of the contenders that people talk about out there then we would have a national capability, substantial scale and by doing that you have sustainability. It’s then about the customer model you develop as a challenger.”
The “third path” is that “you think of the banking model of the future, which is nothing to do with the model of the bank today, and you go there”.
“Whether that is forming alliances with a telco or other fintech opportunities, and stepping out of the box completely. Thinking differently about how you deliver service to customers through different channels than you do today.
“We perpetually look at all three options. In the meantime we start with one single principle. Year one, show that our plc has delivered everything that we said it would [before the IPO].”
Duffy’s own back story is fascinating. He was born in Hammersmith Hospital in London before moving to Ireland when he was about two years old. His parents split up and he was raised in Terenure, south Dublin, by his father’s sister and her husband, changing his name by deed poll from Madden to Duffy at the age of 16 to avoid confusion.
“The only interruption to a perfectly normal life without reference to anything was to change by deed poll my name.”
Duffy calls his aunt and uncle mum and dad and is in the final stage of moving them into a house in the heart of Skibbereen town in west Cork. He has contact with his biological parents by email from time to time. “It’s very relaxed. There’s no great anxiety.”
He credits his aunt and uncle with providing him with “family stability and work ethic”.
She built a business in Dublin called Brunches Catering and Duffy remembers stacks of bread and butter in the kitchen each morning from the crack of dawn. They later moved to Schull to run the Bunratty Inn, winning pub and restaurant awards along the way.
Duffy was the first person in his family to go to university, funding his college fees through a variety of jobs, including working in a 24-hour shop in Rathmines, selling Christmas trees and roofing in Boston for five months each year while he was in college.
“If you were given five seconds free to make a bit of cash you did and you presumed you had to,” he says. “That work ethic sticks with you. You just presumed that the normal operating model in life was that you didn’t have much time at weekends unless you were sick or something. You were at work or sports or something else, that was it.”
Barring his time with AIB, Duffy has spent his working life outside Ireland, with banking jobs either in London, Asia or the United States. But Ireland is his “spiritual home” and he is clear that he will return to live here.
How long does he see himself with CYBG?
“It’s an open-ended book,” he says. “Someone could come along and tell me that they’re buying the bank next year and they don’t need me. Or I might find myself doing something completely different that I never thought of.
“I would like to stick at what I’m doing now and build a real competitor bank. That would probably take me five years or thereabouts. It’s hard to see it all being built and done and settled before then.
“If I could build a long-term success story and then hand it on to a strong team, I couldn’t be happier. I’d probably go back to Dublin then . . . and spend a few days elsewhere or maybe do non-execs in London. I’d be trying to remain in touch with the rest of the world but having a home in Dublin.”
Word up: David Duffy on . . .
Any regrets from time with AIB . . . “I think I would have tried to move faster [in implementing change]. There was a large amount of trying to get the right answer and the right method of doing things. I probably should have gone with gut a few times and just executed. Maybe it would have shaved a year off it – the faster we would have done it the better it would have been for the economy.”
His legacy with AIB . . . “I think it will be for turning it around. Nobody believed it was possible to turn the bank around and change the culture in that four-year window. When I walked in the door there wasn’t a sinner in the country who told me it could be done. I was just met with cynicism and scepticism. Overcoming those odds was pretty satisfying.”
On being nicknamed “Dishy Dave” at AIB . . . “Ha, ha. Yeah, I heard that. Embarrassed mostly, as you would be. I think people were having fun with me.”
AIB’S chance of an IPO . . . “They seem to be on track and it continues to be perfectly IPO-able. Certainly the optics look positive… it’s really down to whatever happens in the political environment right now.”
Michael Noonan as Minister for Finance . . . "I liked him. We had a good relationship because it was formal, only when necessary, and big picture. Our interactions were very solid. He did as well as anybody could have been expected in that job. Everyone in the government had a tough hand and everything went well."
Brexit . . . I’m very relaxed. We’re not taking a public view on it. We’re a national retail business that is not export-related or subject to ring-fencing rules or anything else, so we are just a function of growth in the economy. All we’re concerned about is if Brexit happens does it affect growth. If it does then it affects us but we have no big complicated business to unravel [if the UK is] in or our of Europe. I might be wrong but . . . personally I’d be surprised if the UK exited Europe.”
His assertion three years ago that 20 per cent of AIB’s mortgage arrears customers were strategic defaulters . . . “It turned out to be true. It wasn’t borne of malice as a statement. It was understanding human psychology. People were making decisions to defer payments given other situations. We had to recognise that to deal with it. In the heat of the politics at the time it was going to be an excitable topic but I don’t believe in not saying what needs to be said because of the environment.
“There were people making conscious decisions not to pay the mortgage because of other issues not because the mortgage itself was not affordable. That was a fact.”
His response should he ever approached to become Bank of Ireland chief executive when Richie Boucher retires . . ."No. There's no other banking job in Ireland that I could possibly conceive of nor would there be a motivation to do it. AIB was very specific to the stability of the country in disaster territory. The adrenaline and excitement, energy and effort that that took could never in any way be replicated by another bank in the country."
His plans to buy a drone . . . "I'm fascinated by every technology and drones are the most extraordinary thing in the world. You have drones dropping bombs, you have Amazon applying for driving licences in the sky for delivery. You've got crazy people around the world shooting them out of the sky for privacy reasons.
“It’s the most invasive and pervasive technology since the mobile phone but it’s below the radar. A dozen times I’ve almost bought one. I just want to understand the technology. I’m definitely going to buy one. I just don’t know what I’d do with it.”
Name: David Duffy.
Job: Chief executive of CYBG plc.
Homes: Splits his time between properties in Cork, Glasgow and London.
Family: Has two daughters and a son. His partner is Carolyn.
Hobbies: Sailing, skiing and cycling.
Something we might expect: “I am enjoying a role that involves building a customer bank that has not been bailed out by taxpayers.”
Something that might surprise: He competes in duathlons, which comprise a run, followed by a cycle and then another run. “I find it very therapeutic and enjoy the distraction of it.”