Chief executive focuses on retail banking as lender opens new outlets, writes Una McCaffrey

There was a time, just six years ago, when Cormac McCarthy was clearly the baby of Irish banking chief executives. He was just 37 and the company he was heading, First Active, was still a stock market novice.

It was a personal and professional profile that was out of step with the more established players of domestic financial services at the time, but McCarthy did not show any jitters about his youth or relative lack of experience.

Instead, he steered First Active through its €887 million purchase by Royal Bank of Scotland (RBS) in 2003 and, rather than stopping there, he moved up a step to take the helm of Ulster Bank, RBS's Irish incarnation.

These days, at 43, McCarthy fits more into the profile for top bankers, with David Drumm at Anglo Irish Bank and Andrew Healy at National Irish Bank (NIB) also having done their bit in the interim to pull down the age norm.

Where McCarthy might remain different, however, is in the nature of his market position.

While Drumm finds himself in a more specialised space and Healy is in a position where he is biting at the heels of the main players, McCarthy's Ulster (including First Active) is distinct as being number three in the overall market.

Last year, it made profits of €775 million, compared to AIB's €1.7 billion and Bank of Ireland's €1.3 billion. NIB, the next player, was loss-making in 2005, although that had more to do with external circumstances than with anything on the ground.

"RBS is not a bank that is satisfied as a group by being number three," McCarthy says, though he "wouldn't put a time" on Ulster moving to the top of the ranks.

He believes his bank to be different from "the others" who are trying to eat into AIB and Bank of Ireland's markets because it does not "cherry pick" its markets.

This does not mean, however, that the bank does not focus, in public at least, on particular areas at any one time. At the moment, much attention is going on current accounts, the tough nut to crack in retail banking.

All the main players are after the catch and all have now sweetened the bait with the introduction of free banking. The reasoning is clear: get them in the door for a current account and then sell them everything else.

McCarthy acknowledges that Ulster is not strong on current accounts, with retail banking its biggest challenge. He says there has been "a lot of noise" in the area of late, but claims Ulster deserves credit for giving its free banking automatically to existing customers rather than requiring them to request it.

McCarthy says Ulster's current share of the retail market in the Republic "long term doesn't make sense for us at all". He estimates that the group has 11 per cent of current accounts, a level that is dwarfed by the 70 per cent AIB and Bank of Ireland share between them.

"Our stated aim is to be the number one bank," he says, acknowledging his current number three spot. "I think it's feasible for us because we're closer than people think."

This is particularly true, in McCarthy's analysis, in small and medium-sized enterprise (SME) banking and property lending. He reckons Ulster has between 15 and 20 per cent of SME banking, an area in which AIB and Bank of Ireland are "ubiquitous".

He says that, last year, Ulster (including First Active) was the biggest mortgage lender in the Republic by flow. This gave the group about one-fifth of new lending and left it with about 16 per cent of mortgage stock. McCarthy's goal is to get to 20 per cent of stock "over a reasonable period".

Ulster is also actively expanding on the physical front, having opened seven or eight new branches over the past two years. It is looking at establishing another 20 over the next three to four years. "I've never bought that you can supplant physical distribution with technology."

In fact, McCarthy believes the distribution network is often more important than the sexiness of the products on offer.

This is not a direct reference to NIB, but that bank's recent launch definitely did its bit to jazz up the nature of products on offer. McCarthy says he doesn't underestimate the competition, but goes on to point out that competing is about more than having good technology.

So far, he does not believe any player has really outpriced the rest with new offerings. But, equally, he does not see the market as being "hugely uncompetitive".

As also befits a banking chief executive in 2006, McCarthy is not overly concerned about house prices or his brand's exposure to them. He argues that house prices "are not a thing of themselves" and that believing so is to have missed the debate.

Instead, he sees them as being supported by economic growth, demand issues and (even now) genuine affordability. "We're not irresponsible lenders," he says of the banking community. "Mortgages are not just doled out. Every one is individually negotiated and stress-tested."

That said, however, he does not see the current 12 per cent annual growth rate as being sustainable. Something in the order of 4 or 5 per cent will be more lasting, according to McCarthy. "A natural point will come," he says, adding that this will take "a couple of years".

More controversially, McCarthy is on the record as stating that Special Savings Incentive Accounts (SSIAs) are bad for the economy, both in the way they artificially took cash out and in the way they will force it back in.

"It's the free marketer in me," he says, recalling problems with other interventions, such as the Bacon reports on housing.

Despite his belief that the accounts "created a five-year thing" that has skewed the economy, Ulster is happy to provide the follow-up products that will mop up that portion of the €16 billion outflow that is due over the coming year which is not already committed.

The bank has yet to come out with its post-SSIA offerings, but McCarthy's sense is that 50 per cent of the funds will be spent and 50 per cent reinvested.

SSIAs are, of course, only one concern on McCarthy's mind.

At the time of this interview, for example, he was bang in the middle of three weeks of country-wide roadshows. Every night, he was interacting with another portion of Ulster's 6,000 staff, in Belfast one night (Ulster draws about 25 per cent of its profits from north of the Border) and Laois the next.

On a "normal" day, he will be in the office before 8am and will probably stay until 7pm. He will also usually have two to three evening events to attend during an average week. After that, his full focus is on his four young children, with weekends dedicated to family time. McCarthy promises that his briefcase, despite being full of work, "rarely gets opened" at home.

The key to this, he believes, is delegation. Even though he doesn't like to read management books, he is a fan of the management style of former Granada chief Gerry Robinson, who advises that company leaders should only need to make a handful of decisions each year.

If you are working too much, says McCarthy, you are neither being good nor efficient for your employer. In his case, the employer is based in Edinburgh, a fact that often leads competitors to point at Ulster's foreign roots. McCarthy, unsurprisingly, says the Scottish ownership is an advantage over the situation of, you've guessed it, AIB and Bank of Ireland.

"The freedom I have, with one shareholder, is very empowering compared to having a whole mass of shareholders. I'm very happy with that."

So can we take this to mean that McCarthy has no ambition to head one of these so-called domestic giants at some point in the future? He points out that he has put in his time at both an Irish-listed institution and one with overseas ownership.

"I've run both and I'll take this, thank you very much," he says. "We're making between €700 and €800 million a year and we're growing very quickly. I don't see why AIB or Bank of Ireland is more attractive than that."