Ian Smith is managing the flotation of Clydesdale Bank as it splits off from National Australia Bank – a move that will make Clydesdale the largest UK challenger bank. The vehicle to independence is a £2bn IPO, where three-quarters of the shareholders will be Australian. Smith is making many trips Down Under to make sure they understand his plans.
Smith, who once wanted to be a pilot in the RAF, says: “I have an appetite for career risk.” So the chance to build the challenger bank, alongside CEO David Duffy, appealed. This is a big job and Smith is enthused.
The chartered accountant aims to bring to Clydesdale a degree of operational simplicity absent from the established banks. Banks invariably “make things complicated”, he says, but banking should be simple. “You gather deposits, you work out a sensible way to lend them, and you seek to innovate around the edges to do better things for the customer. That is what people lost sight of in the [financial] crisis and what we are very focused on here at Clydesdale.”
Smith entered the accounting profession in 1989 when he signed up to a training contract with Coopers & Lybrand in Newcastle. Once qualified, he was posted to the Coopers office in Los Angeles, where he looked after the interests of European and Asian investors in films starring the likes of Kenneth Branagh and Sharon Stone. The business was “the most cut throat I have ever seen”. On his return to the UK, he joined Deloitte, becoming a partner in its banking audit practice in 2000, working beside Fred Goodwin, the then CEO of Royal Bank of Scotland. Smith found Goodwin “highly intelligent and charismatic in his own way”.
He had his eyes “very much open” in 2007, when he left Deloitte to join HBOS as deputy finance director. His task was to build the risk function, but within three months the bank had, in Smith’s words, “fallen into the arms of Lloyds”. Smith was left to haggle with Lloyds over the price it had to pay for the fast-falling HBOS assets.
The bank was in the political spotlight, so when MPs needed to know the specific numbers about the HBOS balance sheet, they summoned Smith. He talks of many visits to Whitehall to brief civil servants, advisers and junior ministers. They were as nervous about the bank as he was cool and in control. But the crisis took its toll: “We ate badly, slept badly and didn’t exercise because we were tied to the office.”
He learnt a great deal from the crisis. “The UK was facing an enormous crisis, with great risk. Decisive action was required. This entailed being very precise about what banks had to do.” At the time, he says, the merger of Lloyds and HBOS seemed a sensible, and perhaps the only, private sector solution. Now, with hindsight, he says the decisions taken “have created a competitive nightmare. Regulators in the UK and Europe are still scratching their heads.”
The UK was facing an enormous crisis, with great risk. Decisive action as required. This entailed being very precise about what banks had to do.
The vital importance of conserving capital is the lesson that Smith takes out of the crisis. “When there is a plentiful supply of liquidity and funding, banks lose sight of the need to be conservative. When liquidity dries up, the bank falls over. We all got caught up in a frenzy and lost sight of what things are about.”
He quit Lloyds in 2010 to join the financial services practice at Deloitte – working with Stuart Gulliver when he was dismembering HSBC – but remained fascinated with the operational banking role. “I loved the breadth of the role in the bank. I have always had it in me.”
The preparation of Clydesdale for the IPO in September 2014 included the creation of a fresh management team. Smith was convinced to join it by its size and culture. He says that, unlike other challenger banks, it has “all the kit”. The bank has a strong and growing mortgage business, a personal banking operation, which includes Yorkshire Bank, and an SME arm focused on Scotland and the north of England.
But while the bank is large compared to other challengers, it is sufficiently small and informal to allow Smith to make a difference. “I can see from one end of the bank to the other. I can see decisions being implemented.” He also enjoys the informality of the leadership team.
The challenger bank needs to focus on customers and Clydesdale is now focusing on using digital technology to simplify account opening processes. Similarly it is using technology to bring SMEs closer to the bank’s experts using digital conferencing. Clydesdale needs to leverage the loyalty of its customers in Scotland and Yorkshire to build its deposit base.
The harder task for the financial manager remains cutting the bank’s costs. Clydesdale has an income of around £1bn and costs of £750m, making its cost/income ratio among the highest of all UK banks, at 75%. While reducing branches is one answer to this problem, the one favoured by Smith is to work to increase the income.
“We need sustained growth, we need to be smart about our costs, we need to eliminate excess and we need to simplify things. We need to be a bit more focused and not try to do everything.”
Smith’s goal is to prise customers away from the biggest banks. “We will eat anyone’s lunch.” He also argues that the burden of regulation of the largest banks will weigh down their decision-making and absorb management time and costs. Clydesdale, on the other hand, is agile enough to allow investments that would be overlooked by large institutions to “move the needle” for the smaller bank. He says the newly autonomous management team is now fired up by the knowledge that there is no parent to come to the rescue if it makes mistakes.
The one shadow hanging over the IPO is that a large institution may see the potential of Smith’s plans early and buy Clydesdale before it has a chance to flex its wings as an autonomous bank. But for the moment, he says: “We are relishing the prospect of having great freedom to chart our own path.”
CAREER IN A NUTSHELL
2014-present CFO at Clydesdale Bank
2010-14 M&A leader in Deloitte’s financial services practice
2009 Joined Lloyds Banking Group as deputy CFO after takeover of HBOS
2008 Deputy CFO of HBOS
2000 Partner in Deloitte’s banking audit practice
1997 Joined Deloitte
1993-96 Worked in Coopers’ practice in Los Angeles
1989-92 Trainee accountant with Coopers & Lybrand in Newcastle