António Horta-Osório is perfectly suited to the viciously competitive world of
retail banking - Abbey’s chief executive loves to swim with sharks. With his
three-year turnaround drive complete, the diving-mad Portuguese says that he
is ready to tangle with British banking’s biggest fish to make Abbey a fully
fledged commercial bank by 2012.
However, this will mean raiding insurance, savings, investment and credit card
market shares jealously guarded by the big-hitting HBSC, Barclays, Lloyds
TSB, HBOS and Royal Bank of Scotland, as well as ambitious building
societies such as Nationwide. At the same time, Mr Horta-Osório must
continue to lift Abbey’s mortgage and current account sales, just as every
other high street bank chases the same customers. The Lisbon native figures
that, backed by the financial and technological clout of Santander, the
world’s fifth-largest bank, he can do it. Rivals are sceptical. The battle
lines are drawn.
Abbey National was once one of Britain’s best-known banks, but by 2000
diversifications into riskier areas such as wholesale banking had made it a
perpetual takeover target. In 2002 Ian Harley, its chief executive, departed
after a £272 million junk bond loss and Luqman Arnold, the former chief
financial officer of UBS, was hired in an attempt to turn the bank around.
Mr Arnold gave himself three years to run down Abbey National’s wholesale
bank, derisk its life insurance business and regain market share. By early
2004, the respected banker had shed much of the loss-making wholesale
operations and reduced risk from the cash-hungry life operations, but,
despite a colourful rebranding of branches, in which “National” was dropped
from the bank’s name, he had had little luck in luring back customers.
Santander, keen to diversify from Spain and Latin America, saw Abbey as,
according to Alfredo Saenz, its chief executive, “a once-in-a-lifetime
chance” to push the Spanish bank into the world’s top ten. A 2001 bid by
Lloyds TSB had been halted on competition grounds, but the Spaniards’ £8.5
billion offer in 2004 was a winner for what was then Europe’s biggest
cross-border bank takeover.
After a year as a non-executive director of Abbey, Mr Horta-Osório, the heir
apparent, took its top job three weeks early on the death of his
predecessor, Francisco Gómez-Roldán. The new chief executive knew that,
unless he continued to work on Abbey’s cost-income ratio (COR), he could not
spend on its neglected branch network or offer table-topping products while
satisfying Santander with a decent return. Abbey’s COR was 70 per cent,
while the sector average was 55 per cent. Santander wanted £300 million in
cost savings and £150 million in revenue growth within three years of the
acquisition.
At the same time, Mr Horta-Osório was to oversee Britain’s biggest IT
migration, with 11 million customers’ records moved to Santander’s IT
system. By using one global system, the group can cut transaction costs.
Abbey’s treasury operations also had to be integrated with Santander’s - and
Mr Horta-Osório had to win over Abbey’s workers, who faced 5,000 job cuts
and an influx of Spanish colleagues.
The chief executive knew that he faced a serious challenge and decided, as he
had when creating Santander’s Brazilian business and running its Portuguese
operations, to move quickly. “One third of the people think that the
direction is right and support you from the start,” he says. “A third don’t
support you because they don’t think it’s right or they don’t want to move.
Inertia is a normal human thing. The last third is looking at who’s going to
win so they can support the winner. What I normally do is go as fast as
possible so that it’s very clear where we’re going and the second third
immediately joins.”
Such pragmatism is, Mr Horta-Osório feels, a Latin thing. “British people
plan, set up timelines and perfectly execute a well-defined strategy,” he
says. “I find British people in banking very organised, meticulous and
diligent.” The Latin approach, on the other hand, is to try to get 80 per
cent of a plan completed as quickly as possible and let the rest of it slide
if the remaining time can be used better.
“Going quicker doesn’t mean going in an unbalanced or insensitive way. And
maybe the fact that I’m not Spanish helped with the British-Spanish thing.
You have great things in each culture and my personal aim is to try to get
the best of both.” Of course, there were hiccups. Customer service suffered
during the IT transfer, most embarrassingly at the bank’s probate and
bereavement centre.
However, Mr Horta-Osório had hit his targets when the three-year turnaround
project ended last December, despite a tougher-than-expected financial
environment. He says that Abbey’s COR is down to 50 per cent, against a 48
per cent sector average, and revenue growth was 5 per cent last year. Now he
is expanding Abbey’s offerings, using the new IT system to cross-sell
insurance, life, protection and investment products, credit cards and
offerings for small firms. Part of the expansion plan is to add 300
branches, taking the network to 1,000 by 2012. The other is to use
Santander’s experience to create market-beating products. The group knows
how: in 1989, when interest rates in Spain were high and Spanish banks did
not pay interest on current accounts, Santander created such an account and
stole market share from astonished rivals.
While European banks burnt by the sub-prime loan crisis in the United States
are retrenching, Spanish banks boast of their escape. In February Santander
described the impact of the crisis on its 2007 results as “zero”, which Mr
Horta-Osório says gives Abbey confidence to grab new business as rivals drop
all but the most basic products. Last year Abbey issued several new
products, including 8.1 per cent Super Bond and Super Isa products, a 5 per
cent cash-back credit card and a no-deposit mortgage.
Mr Horta-Osório says that, although Abbey has 6 per cent of the mortgage
market, well below the 20 per cent of the market leader Halifax, it took a
tenth of new business in 2007’s second half as other banks ran scared. “In
the first half of this year, you can expect us to have a bigger market
share,” he says.
Moneysupermarket.com, the comparison website, says that Abbey has some of the
best offers on overdrafts, Isas, savings accounts and 100 per cent
mortgages. However, rivals say that they are not yet feeling the pinch from
the challenger.
Clearly Emilio BotÍn, Santander’s chairman, thinks that there are faster ways
to expand Abbey’s stake in the UK than with good products. Although Mr
Horta-Osório declines to comment, Santander is known to have approached
Alliance & Leicester last December. Mr BotÍn has said since that he has
no further interest in a British acquisition, but analysts do not rule out
his return to the fray. For now, Spain’s biggest bank has other
preoccupations; completed house sales in Spain in January fell 27 per cent
year-on-year and total lending to homebuyers fell almost 28 per cent to
€13.4 billion (£10.6 billion), a painful example of the country’s economic
downturn.
Abbey has an average loan-to-value of 46 per cent, lower than most rivals, and
so has a little less to fear from rising bad debt than others. Mr
Horta-Osório predicts £80 billion net lending in 2008, against £110 billion
last year. “House prices on average will decrease slightly,” he says, “but
there will still be growth and people who make up the bulk of the market
will have a wide range of the offerings to choose from.”
This is the Abbey chief’s second stint in the UK. He lived here 15 years ago
when in investment banking for Goldman Sachs. “Now the food is much better
and even the weather is improving, with global warming,” he says, although
he still returns to Lisbon every other weekend. When he wants to dice with
really dangerous creatures, the master diver goes to French Poly-nesia.
“Rangiroa, it’s the best place in the world for sharks,” he says.
C.V.
— Abbey’s chief executive since August 2006, having joined as a non-executive
director in November 2004
— Also executive vice-president of Santander group
— Was chief executive of Banco Santander Totta in Portugal and Banco Santander
Brasil chief executive
— Early career with Citibank Portugal and as assistant professor at
Universidade Catolica Portuguesa. With Goldman Sachs in UK and US before
joining Santander in 1993
Q&A
If you could change one thing in the financial and commercial environment,
what would it be?
Better education for people to help them to understand their finances and the
financial world. Santander and Abbey are already helping to do this by
making a considerable investment in education through universities
What does leadership mean to you?
Enabling people to fulfil their full potential
Which business person do you most admire?
There are two. Jorge Paulo Lemann — one of the controlling shareholders of
Interbrew, of Belgium. He is a former Wimbledon tennis player, a veterans’
world champion, and is Brazilian. I’m grateful to count him as a friend. I
partciularly admire his incredible focus, ambitious objectives and reading
of the environment/economic trends. And Warren Buffett, the chief executive
of Berkshire Hathaway, who I’ve been fortunate enough to meet twice
personally. I admire his great entrepreneurial skills in choosing businesses
to invest in. His results obviously speak for themselves
What is most important in your working life?
Character and integrity
Which is more important, what you know or who you know?
Continuous learning throughout one’s life makes a person independent from
being constrained by what or who you know
Does money motivate you?
No, success and achievement do
What gadget must you have?
A Tablet Computer — it is indispensable
How do you relax?
Spending time with my family, playing tennis and scuba-diving
