Billy Kane knew time was up in August 2008 for his lending business that allowed seniors to release equity in their homes when a Wall Street bank that he had lined up to buy most of the loans and refinance them in bond markets stopped taking his calls.
"The bank was Lehman Brothers, " recalls Kane of the storied investment bank that would collapse weeks later, sending the global financial system into a tailspin.
It's understandable then that the former Irish Permanent chief was worried when he set about rebooting his business, Finance Ireland, two years' later to focus on car lending with former Bank of Scotland (Ireland) executive Frank Donnellan.
UK merchant bank Close Brothers had signed up with seemingly ominous timing to provide the funding in the same the week that the EU-IMF Troika landed in Dublin to bail out the State. “I remember saying to Frank we’d never see them again, because the contract contained the usual material-adverse change clause,” Kane says.
He was wrong and this year Finance Ireland’s Close Brothers-funded car lending business, First Auto Finance, will write €250 million of new loans, leaving it with a total book of €500 million and about 12 per cent of the garage forecourt finance market.
Having added small business, agri-finance and commercial property lines to the mix, the company’s total portfolio will top €1 billion for the first time by the year-end – just as it prepares to enter the mortgage market.
Ireland’s largest non-bank lender, which had a brief life on the junior London and Dublin stock markets before the financial crash, is also looking again at an initial public offering (IPO) but not for another two years.
Kane says it will probably carry out another private fundraising late next year. US investment giant Pimco and the Ireland Strategic Investment Fund (ISIF) each own 31 per cent of the company, having provided €85 million between them since 2015.
“We’ve always wanted to be the largest alternative lender in Ireland. The last piece we really needed in the jigsaw was residential mortgages,” says Kane. “The market is going to grow from €8 billion to €12 billion over the next few years, and we wanted to be part of it.”
Finance Ireland announced last month that it had agreed to buy Pepper Money’s €200 million home loans portfolio and mortgages platform, with UK asset manager M&G Investments providing the funding. M&G had already been lined up during the summer to back Kane’s mortgages business when he got wind that Pepper, which was acquired by US private equity giant KKR last year, was looking to exit Irish mortgage lending.
Kane plans to continue to grow Pepper’s “near prime” mortgage business to borrowers such as self-employed homeowners and people with minor impairments on their credit histories, while targeting the general market with standard home loans from February.
He says the mix will give Finance Ireland “the richest product suite of any lender” in the State.
While European Central Bank president Mario Draghi told the Oireachtas Finance Committee on November 8th that Ireland has become a "quasi-monopoly" – with AIB and Bank of Ireland controlling about 60 per cent of the mortgage market after overseas lenders such as Bank of Scotland and Danske Bank exited post the crash – and there are no signs of overseas challengers entering the fray.
“We are the competition,” says Kane, of a group of non-bank lenders that have emerged in recent times, including Dilosk and some credit unions.
Kane's career journey has been long and winding. A native of Bray, Co Wicklow, Kane was the youngest of four children. His father worked for Burmah Oil (now part of BP) and was a well-known trade union official, having spent much of his career taking on the banking establishment.
On graduating from UCD in 1976 with a commerce degree, Kane set off for Coventry in England to become a finance analyst with car-maker British Leyland, which, even then, symbolised the decline of the country’s once-proud manufacturing prowess.
Returning to Ireland two years later, he became a sales rep for Rank Xerox, before joining office equipment supplier Sharptext, where he came to the attention of Craig McKinney of specialist finance firm Woodchester Finance. Kane joined Woodchester in 1984 as sales director and its seventh employee, leasing office equipment and later cars.
"We just built that business from small-ticket leasing, office equipment, then cars, and then acquired a lot of businesses from UK banks and financial houses that were leaving the Irish market," says Kane, with deals including the purchases of Bowmaker Bank and Mercantile Credit.
Kane was dispatched to the UK in 1988 to run Woodchester Investments (UK). After leaving the company in 1992, he approached Irish Permanent, then a building society, about setting up a car finance division.
The success of Irish Permanent Finance resulted in promotion for Kane to general manager of retail banking in 1995, before being appointed chief executive of the lender in 1999 on its merger with insurer Irish Life. He quit within two years of the deal.
“The culture of Irish Permanent was excellent. Because it was a mutual by background and there was a lovely work ethic and a good culture,” says Kane. “But when we merged with Irish Life I found that difficult because Irish Life [previously State controlled] had a different culture, a different feel to it.”
In 2002, Kane set up Shared Home Investment Plan (Ship) offering the first openly-marketed equity-release product in the Irish market for seniors, and in 2006 it secured a stock market quotation by reversing into publicly-quoted Ardent and was subsequently renamed Finance Ireland.
In April 2007, Finance Ireland set up a subprime lender with Investec, called Nua Mortgages, before selling its 40 per cent stake back to its partner later that year. Investec's takeover at the time of UK-based Start Mortgages, which has an Irish business, triggered its buyout of the Nua shareholding as its agreement with Kane prohibited it from owning a rival in the Irish market.
Kane was lucky to get Finance Ireland’s €1.4 million equity investment in Nua back as others who dipped their toes into Irish subprime during the boom years didn’t fare so well.
The seniors equity release business, funded by Ulster Bank, had built up a loan book of €80 million by mid-2008, and the aim was to sell €50 million of the loans to Lehman Brothers, which would bundle them into a portfolio of mortgages to be refinanced in the bond market through a process called securitisation. "The deal was already agreed with Lehmans. They just never sent us the cheque."
Ship stopped writing new business in 2009.
By then, Finance Ireland, which had 50 employees before the crash, only had three people.
Even in the dark days Kane reckoned that there would be an opportunity to get back into lending again as foreign institutions fled the market. The problem was finding a partner with the same view. Close Brothers , who initially held talks with Donnellan in 2008, decided in November 2010 to back the company – just as Ireland was heading into an international bailout.
Business was slow to start off, with First Auto Finance writing €22 million of car finance in its first year but it accelerated as the economy recovered.
In 2015, Finance Ireland became the first company outside the two pillar banks to access funds through the Strategic Banking Corporation of Ireland to lend to SMEs. The following year, it established a €100 million Milkflex fund in partnership with Glanbia, ISIF and Dutch lender Rabobank.
Finance Ireland now offers agri-loans from its own balance sheet, while its SME portfolio is on track to end the year at €80 million, though Kane noted a slow down in lending to small businesses in September and October amid growing uncertainty over Brexit. “People are wondering whether they should take out new equipment or not. It happened before, in the two months after the Brexit referendum.”
Commercial real estate lending, which Finance Ireland entered in 2015 and has subsequently built up a €250 million portfolio with funding from London-based HSBC, is going strong, says Kane.
“When we started off 80 per cent of our business was from people looking to refinance debt with private equity and hedge funds [that acquired loan books from banks during the crisis]. That’s largely dried up and now most of our customers are looking to buy assets, whether it’s multifamily residential units, warehousing, retail or hotels.”
Kane said that some parts of the commercial real estate market are “coming near the end of the lifecycle”.
“We’re not in the large office space in Dublin, but I think that’s probably peaked. We deal with professional landlords, guys who understand value and are coming in and buying stuff that needs refurbishing. We think there’s a way to go with that.”
Second time around things are different for Finance Ireland, according to the boss.
“When I look back at how we built businesses before it was all about origination, origination, origination,” says Kane, slipping into banker-speak for lending. “We never thought that much about managing the portfolio, the risks associated with what we’re doing, or how to build the platform.
“This time around, I said ‘we’re going to go about this the slow way. We’re going to put in the foundations, put up a structure and make sure that everything is solid.’ We have learned the lessons. Some of it was forced on us, thankfully, through increased regulation and [DATA]reporting. But we also invested hugely in centralised credit, compliance, HR and risk.
“In the glory days we never thought about that. I don’t think we even thought much about it in our banking days. When I was with Irish Permanent it was all about when could you get 25 per cent of the market. But there were no arrears on mortgages back then. It was unheard of.”
While borrowers more than 90 days behind with their repayments has more than halved in the past year to 6.3 per cent in June, Kane is re-entering a market where more than 28,000 home loans are more than two years in default.
Kane says Finance Ireland will be “competitive” but will not lead the market in pricing even as the average standard variable rate for new home loans in the State stood at 3.08 per cent in September, compared with 1.76 per cent across the euro area, according to data from the Central Bank of Ireland.
Kane says Irish banks face higher funding costs and have to hold more capital than most other European peers because of the scale of the crash here and the fact that it is very difficult for lenders to foreclose on loans in default.
“There will be continued margin attrition in the coming years, which will be good for customers, but I think we’re a while away before going back to European norms.”
Kane believes borrowers who can’t afford their loans must be helped but by the State, not lenders.
“I can understand there’s very little sympathy for that idea when we have gone through a period of such bad behaviour and carelessness by the banks, when these guys cost us €64 billion to rescue. But when the State expects private enterprise and lenders to take the burden of people who can’t pay, having given them lots of opportunity to do so, then we’ve got it wrong.”
Finance Ireland’s headcount is set to reach about 140 as 10 people transfer from Pepper’s Dublin operation and Kane recruits a similar number to help manage the mortgage portfolio.
However, the company lost one of its earliest employees in the auto finance business, David Clerkin, last weekend when the 30-year-old Ireland and Drogheda United football fan drowned in Copenhagen after travelling to the city ahead of the Ireland-Denmark football international on Monday night.
“We are all having a bad week,” said Kane.”He was a larger-than-life character and we nicknamed him our ‘entertainment manager’ as he was always organising staff outings.”
Kane, who turns 64 in January, found himself wistfully tracking his son’s travels through the likes of Thailand and Cambodia as he took a year off last year.
“I’d like to do the same route from northern Thailand through the Mekong Delta – it’s a matter of taking time out to do it.”
Any such opportunity on the horizon over the next few years?
“No. Definitely not.”
He’s got mortgages to sell.
Name: Billy Kane
Job: Chief executive of Finance Ireland, the State's largest non-bank retail lender
Lives: Rathfarnham in south Dublin
Family: Married to Maud. He has three children from a previous marriage
Hobbies: Kane used to sail a lot, but hasn't for the past few years after hurting his neck. He enjoys walking and travelling.
Something we might expect him to say: "I have a strict ethical compass. I expect people to behave reasonably towards one another in business"
Something that might surprise: He's a keen bird watcher, and likes nothing more than to set off with his wife with their guidebook to see how many different species they can spot.