Robert Gallagher: 'The first thing is to get bankers speaking and interacting more with their customers and rebuilding relationships'

Back in October 2008, just weeks after Brian Lenihan introduced the bank guarantee scheme amid the collapse of the global financial system, the Irish Banking Federation (IBF) held a series of meetings with its different member constituencies – domestic banks, foreign-owned banks, IFSC banks – to craft a unified strategy for coping with the unfolding crisis. IBF officials operated a kind of shuttle diplomacy, conveying messages between the groups, who had been thrown into a highly adversarial dynamic by the sudden return of economic nationalism to the banking landscape.

Legend has it these delicate negotiations broke down when Michael Fingleton, then chief executive of Irish Nationwide, arrived on the scene and, when asked whether he knew everybody present, tersely responded: "Of course I do, but I sure as hell wish I didn't." Recriminations ensued, positions hardened, and the IBF has tried since then to keep the separate camps held together by a broad common interest, even if beneath the surface a certain residue of distemper persists.

The IBF is probably fortunate, in that case, to have Robert Gallagher sitting in the president's chair. Known around town as a banker's banker, Gallagher brings with him experience and perspective from all relevant corners of banking. He has been chief executive of corporate markets at Ulster Bank since 2005, but before that spent 14 years at AIB, where he eventually became head of international corporate banking, following a stint in Australia with global giant Citibank.

"It's probably a good time for someone in an international bank to be president of the IBF," he says. "We're a broad church... and I have a window on all of it and a fascination and interest in making sure the domestic market rebuilds trust and that we re-energise the IFSC."

In an industry which has not only badly let down the public, but where different members have come to regard each other with suspicion, trust is a key commodity – and Gallagher has made it his top agenda item, coming before rebuilding the sector or advancing the cause of the IFSC. And to do that, he says, senior bankers are going to have to come out and face people again.

"There is obviously a fear of speaking now, but the first thing is to get bankers speaking and interacting more with their customers and rebuilding relationships," he says. "It's not about bankers getting up on a podium. There needs to be a debate about what way the industry should be, about what way the industry plays a role in the growth of the economy. But because of the mistakes bankers have made, the risk is that senior bankers won't sufficiently take part in the debate."

Some might prefer to exclude bankers altogether on the grounds that you should not seek advice from the same people who caused the problem in the first place. Unsurprisingly, Gallagher disagrees, citing the centrality of banks to the economy and the need for what he calls "reasonable representation" from the people who understand it best. This belief in expertise informs his opinion of the impending banking inquiry, too, which he thinks has been correctly structured, with two expert reviews preceding a more public investigation of what happened in the lead-up to September 2008.

"You bring expertise to establish the facts and then you allow the public representatives to debate the facts. If you didn't do that, if we went straight to public debate, I think there is a danger we wouldn't have an informed debate," he says.

He also agrees that the timeframe under consideration should end with the government's intervention in September 2008 and should not include subsequent political decisions and revelations about the sector, its governance and the regulatory environment, because these would distract from the main aim of the inquiry: creating a healthy banking industry.

"We'd all be fascinated to read it. But the ultimate purpose has to be that we end up with a robust, competitive, well-regulated banking system. There is some danger we'd be distracted by political decisions rather than focusing on the goal of building firm foundations for the industry."

Gallagher sees two cornerstones to those foundations: regulation and active shareholders. He describes the new chief executive of the Financial Regulator, Matthew Elderfield, as more "interactive" than his predecessor. Elderfield and Central Bank governor Patrick Honohan have, he says, been "out and listening" around the banks while gauging the strengths and weaknesses of their own organisations and investing in the kind of expertise and talent that was lacking pre-crisis.

He also insists that regulation alone won't be keeping the banks on the straight and narrow, however. Shareholders are much more involved now, too. "We are in a new reality. The boards of banks are going to require everything a regulator would want, so regulation will be facilitated by improved governance at executive and non-executive levels and will be supported by institutional shareholders who are demanding it. Shareholders will want to be reassured. If you list all the things shareholders would want and list all the things a regulator would want I bet the overlay would be 85%."

But what about customers, the very people Gallagher acknowledges have had their trust abused? Credit has contracted swiftly and painfully both for individuals and businesses while loan arrears have shot up, putting people under immense financial pressure in an economy that appears to offer little sign of improvement.

While the government has made a number of commitments to ameliorate these problems, specifically with regard to mortgage arrears and credit to SMEs, the IBF is undertaking initiatives of its own, as well. It has commissioned ex-bankers Tom Foley, from KBC, and Jim Rourke, from Bank of Scotland Ireland, to develop proposals for industry-wide solutions to these two credit problems. And Gallagher is quick to point out what banks have already been doing to help.

"Remember 97% aren't in arrears," he says. "I'm not being facetious. It's important to bring context to it – the level of repossessions is exceptionally low. That's not to underestimate the challenge, but the reason for the low level of repossessions is that the industry is working exceptionally hard to communicate with customers to understand their cash flows and to change the profile of their payments to facilitate their circumstances. It's not in the industry's interest to take action that tips it all over."

The lack of credit to small businesses appears to be a trickier subject, though, as the risks of lending to business are generally higher – even more so in a severe recession.

"The assumption of lending is that you get your money back," says Gallagher. "If you think you may not get your money back it's called equity. The expectation in good banking is that loans get repaid. If you had a situation where 100% of applications got a yes, you'd probably end up with a banking sector that has big impairments."

QED.

Up for AIB top job – twice

Robert Gallagher has the distinction of being shortlisted – not once, but twice – for the top job at AIB, most recently during the long-running and highly disputatious effort to fill the post vacated by Eugene Sheehy when he was forced to resign last May. Before landing in Ulster Bank as part of chief executive Cormac McCarthy's team, Gallagher was understood to be a dark horse to replace Michael Buckley. That would have seen him promoted over his then-boss and current AIB managing director – and de facto chief – Colm Doherty. Although Gallagher says he was not interviewed for the job last year, it is widely understood in banking circles that he was among the 'outsider' candidates considered – but ultimately rejected by the board in favour of inside man Doherty.

Curriculum Vitae

Robert Gallagher

Position: President of the Irish Banking Federation and chief executive of corporate markets at Ulster Bank

Age: 48

Family: married to Denise, seven children

Education: UCD, BS zoology; chartered accountant

Job history: KPMG, Citibank Australia, AIB, Ulster Bank/RBS Group

Hobbies: swimming, cycling and running