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.
Bloated
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.
“In order for those physical presences to be viable and scalable, they probably need a lot more transactions going across them. We are happy that An Post carry out counter services such as foreign exchange, cash and cheque handling,” he said.
“It just makes sense and, if it makes sense for us and for AIB , I can’t believe that it doesn’t make sense for the other high-street banking providers.”
The closure of branches where customers have direct access to their cash seems odd after a crisis that spooked depositors causing bank runs. Browne, whose professional life has been lived in bank treasury – the money-gathering side of banking – says customer cash is centrally located in a bank, though he accepts there may still be customer resistance to branch closures.
“Customers can think they are missing something but, in reality, if you asked the vast majority how often do they go to their branch, an awful lot of people would not have been in their branch for six or 12 months,” said Browne.
“We think customer behaviour is telling us one thing but there may be a resistance in mindset that there isn’t a branch readily available where there was one before.”
Moving “counter service” to post offices means the advisory centres can concentrate on generating new business and dealing with more significant customer queries.
“For the handful of times a year that customers do want to have a face-to-face meeting, it was a very expensive meeting facility carrying that number of branches,” said Browne.
The further shrinking in the size of the bank should not lead to people questioning the Danish owners’ commitment to their Irish business, he said.
“There is no denying they have taken a long, hard look at various businesses, including Ireland, and [have] come to this conclusion after three years of looking at the business and the opportunities,” said Browne. “Their belief is that Ireland is somewhere, from this point on, where they can drive significant value again and they would be quite upbeat about the opportunities here.”
Browne says Danske is “on record” as saying the €1.4 billion paid for NIB and Northern Bank in 2005 “wasn’t the greatest investment” and that they also bought Finnish bank Sampo “at the top of the market”.
The Danes had, like most people in Ireland, bought into the Irish property story and believed this bubble was different. Now it is about extracting as much value as they can, he says.
The drag of running a non-core book of almost €5 billion in loans which will take some time to manage out, was not a reason to maintain a “core” presence in Ireland, he says.
If Danske wanted to get out of Ireland, the Danes could have, as Lloyds is doing with the former Bank of Scotland (Ireland) business, wound down the loan book remotely, he says.
Crystal-ball gazing
“You could turn it on its head and say the logic was: we are here to stay, we are keeping a physical banking presence in Ireland and doing that means we can now take a longer time to work out our non-core assets and keeping a non-core business with a going concern generating good revenues would cross-compensate,” he said.
Browne says winding down the non-core division may take between two and four years, while Danske may take another two or three quarters of “elevated” bad debt provisions. But he sees the non-core loans being worked out with “no further significant pain”.
“We can now hopefully work out the book and perhaps write-back some of the provisioning in time but that’s crystal-ball gazing at this point,” he said.
Disposing of large portfolios of non-core loans at sharp discounts – as Lloyds did with a €2 billion portfolio earlier this week selling it at 90 per cent of its face value – is “on everybody’s radar”, says Browne. But this method of reducing loan books may not be as straightforward as it seems.
“Not all assets can be packaged that easily. Most banks will package them up and sell them with regard to funds. Again, it is just a question of getting a bit of supply out there to see how the market progresses,” said Browne.
He admits the market for most Irish assets is “very thin” right now and that it is about “finding a bottom” to prices before agreeing to sell.
Landmark properties are a different story. The bank wasted no time in putting the former NIB branch on College Green in Dublin city on the market this week for €4 million.
Browne says some of the other former NIB outlets would be more traditional branches that “had a value maybe as a pub some years back but that demand isn’t there now”. These may take time and an uplift in the market to be sold, he says.
Danske may not have the same scale of problem mortgages as rivals, given how NIB sold tight-margin, low-rate trackers on a low loan-to-value ratios, but it still has to assist distressed mortgage borrowers.
Browne says the average loan-to-value ratio of 40 per cent at peak has meant that the bank has been able to absorb the 60 per cent decline in property prices without as much distress as other lenders.
Buy-to-let mortgages have been ringfenced in a separate unit and are being managed on the “case-by-case” approach that all banks are taking. Negative equity has not been as damaging for buy-to-let loans as people assume, he says, because the rental market has remained very buoyant and this has kept cash flowing in.
For its troubled owner-occupier mortgages, Danske is still in talks with the Central Bank on long-term customer fixes through the mortgage arrears resolution scheme being introduced across the banks.
Browne took the recent criticism of regulator Fiona Muldoon that banks were not doing enough to tackle problem mortgages as “a reasonable challenge” and defended banks by saying that they had a lot of catch-up work to do to gather information and strengthen security on loans.
“There is no doubt that we can all do better and have to do better on that front,” he said.The issue of banker pay and pensions is “highly emotive”, and “understandable”, he says, given how the crisis has unfolded. He believes that, to get the best people, banks have to pay “the value in the marketplace” to get the right competence and the market will dictate pay in banking, he says.
“You can risk throwing the baby out with the bath water by capping the salaries and having yourself less competence in the roles,” he said.
The fact that Browne comes from the money-getting rather than money-giving end of banking could be read as the industry going back to its roots. Banking lost its way in recent years, particularly in Ireland, he says. The return may involve mortgage rate increases having “a little bit more to go”, closer to 5 per cent long-term, as banks rebuild interest margins, he says.
“The old adage was ‘363 Banking’; you took deposits at 3 per cent, lent at 6 per cent and everyone got home by 3 o’clock. I’m not sure the 3 o’clock will remain,” he says. “That back to basics is something all banks are looking at now. The bread and butter of banking is having your funding, lending it judiciously, making the right return for the risk and everything else beyond that.”
CV Terry Browne
Name: Terry Browne
Position: Country manager and head of corporate banking, Danske Bank in Ireland
Age: 52
Family: Married to Carol, they have a daughter, who is a trainee surgeon, and a son who is studying business and law.
Home: A Dublin northsider, he was born in Raheny but now lives in Clontarf.
Hobbies: An avid sports fan, he is a past captain and current president of Clontarf Rugby Club where Bank of Ireland chief executive Richie Boucher has coached under-age teams. They talk "only about rugby" when they meet, says Browne.
Career: He is a career banker and has spent 30 years at the bank working under British, Australian and Danish owners – Midland Bank, National Australian Group and Danske, the current owners of the Irish bank which was rebranded from National Irish Bank to Danske Ireland this week.
After a short stint in retail banking, he moved to treasury working in various roles before being appointed head of markets, a role he held for 10 years.
He took charge of National Irish Bank’s corporate and institutional business in 2009 and the following year assumed responsibility for the business sales units at the bank.
He is now responsible for corporate, institutional and international corporate banking in Ireland based in Danske’s offices in the IFSC in Dublin.
Something you might expect:He spends many of weekends travelling to clubs in the All Ireland League supporting Clontarf Rugby Club as president; there are nine away fixtures in the league's season.
Something that might surprise:Given his job, his bosses in Copenhagen and his residency in Clontarf for many years, he has a deep understanding of Danish-Irish relations, past and present, and is looking forward to marking the millennium of the Battle of Clontarf in 2014.
