Astute and unstuffy, the new Abbey National boss is a popular figure in the City. But he faces a hard task, says Andrew Davidson, keeping the demutualised plc's rip-roaring performance going, now that so many rivals have followed its lead.
Abbey National, the bank that likes to call itself ... anything but a bank? Ian Harley barely blinks. 'Yes, of course,' he says, the words tumbling out in a fast, clipped Scottish accent. 'We studiously avoid the word. It has negative customer connotations.'
Now, this is either clever stuff, or quite confusing, depending on your point of view. Abbey National, which has been a demutualised plc since 1989, and is now one of the biggest banks in Britain, is quite happy for its customers to keep thinking it is a plain old building society, cuddly and caring. What is going on?
Well, says Harley, his craggy face holding a fixed smile, the truth is that the word 'bank' researches very badly. People don't like banks. Abbey only used it for the first time three years ago, when through gritted teeth it relaunched its current account as a bank account. Otherwise it remains the great unmentionable. 'We are very happy with the open, friendly connotations of our building society roots,' he says.
But what does Abbey National want to be? Quick as a flash Harley answers: 'We know what we want, we want the best of both worlds, and that is a perfectly reasonable aspiration.'
And why not? Harley, 48, shifts in his seat ever so slightly. He is sitting in his sixth-floor Baker Street office, just two months in as chief executive of Abbey National, not quite long enough for him to have made the surroundings his own. The room is large and creamily anonymous, an awkward mix of nice views, old faithfuls (a grandfather clock) and new furniture - much, you might say, like Abbey National itself.
Except awkward probably isn't the adjective you would use to describe Abbey's rip-roaring financial success since it ditched its building society status nine years ago.
In February it announced pre-tax profits for 1997 of £1.4 billion, up 16% on 1996 and more than double what they were five years ago. In the same five-year time-span, total assets have jumped from £72 billion to £151 billion, and its net dividend from 11.5p to 30p per share.
Happy shareholders. Indeed, as owners of the best-performing share in the FTSE-100 since 1989, Abbey shareholders have every reason to be not just happy, but delirious. It seems that Abbey, already Britain's fifth biggest bank by market capitalisation, can do nothing wrong.
Happy shareholders, happy Harley? Not quite. One of the effects of Abbey National's remarkable stock-market success has been effectively to clear the way for the rush of rivals who have followed it since: the Halifax, the Alliance & Leicester, the Woolwich. Investors have more to choose from these days, and Abbey faces tougher competition. Beyond that, the financial services market is consolidating fast. April's announcement of the £85 billion merger between Citicorp and Travelers Group in America, which had not yet been made when we met, puts size very much in perspective.
Being fifth biggest in Britain is not much cop with new alliances and acquisitions popping up every month. Analysts are getting twitchy, and have noted that costs are creeping up at Abbey, hence a spattering of sell or hold calls, downgraded from buy, in the brokers' reports that followed February's sparkling figures. Harley, a 20-year Abbey man who originally joined the company as a financial analyst, knows that he faces a hard task keeping that extraordinary performance going. But he is nothing if not laconic. 'Oh well,' he shrugs, 'if the choice is between inheriting a basket case or having a hard act to follow, I think I would rather have the hard act.' His chairman, Lord Tugendhat, adds that one of the reasons Harley was chosen was that the board knew he had the self-confidence not to be overawed by his predecessor's success.
Slim-shouldered and wiry with a domed forehead and determined chin, Harley, formerly Abbey's finance director, is a popular figure in the City where his penchant for prickly badinage has long marked him out from run-of-the-mill bankers.
'I have known him for years,' says one analyst, 'and he hasn't changed.
About 90% of the time I spend in his presence he still insults me.' He is something of a contrast to his predecessor as Abbey boss, Peter Birch, the former Gillette UK chief. While the public-school educated Birch was an instinctive marketer, credited with the acclaimed success of Abbey's retail services since flotation, he generally avoided press contact and allowed Harley to do much of his legwork in the City. Harley, by contrast, is a working-class Scot, a nuts-and-bolts man who describes his approach as 'analytical' and steps into the boss' shoes with the declared intention of giving the top slot at Abbey National a higher profile. 'Life changes,' he says. 'Transparency is crucial nowadays. It is not enough to be able just to do something. You have to explain it again and again and again inside and outside the organisation, and not mind doing so.'
He arrives with a reputation as a no-nonsense manager who possesses a fine head for figures and, with his long experience at the company, a good sense of Abbey's very distinctive culture, a factor which should never be underestimated. The company's roots in 19th century social reform still, according to those who know Abbey well, influence its corporate ethos. Created out of the merger of the National and Abbey Road building societies in 1944, it can trace its lineage back nearly 100 years earlier and counts among its Victorian founders the radical MP Richard Cobden, who originally backed the National as a means of enfranchising the working man in the days when no property meant no vote.
Later, as the building society movement grew to have an enormous impact on metropolitan life, making possible the rapid development of city suburbs, both Abbey and the National championed the owner-occupier principle which still infuses British aspirations to this day. As a corporate culture, the merged Abbey National soon developed a reputation for radical decision-making and for looking after its own - it is not, apparently, a company that many managers readily leave. Making the shift to plc status, and being the first building society to do so, was an agonising decision to take. And it is still not a conventional plc. For a start it has 2.5 million shareholders, most of whom are also customers. Abbey's AGMs, according to one City adviser, are extraordinary, often filled with questions about why such-and-such a branch isn't open any more, or why so-and-so's mortgage has gone wrong.
The company really does pride itself, says another who has worked with Abbey, on treating everyone decently: staff, customers, advisers. It is also, despite the preponderance of men at the top, a predominantly female-run organisation (over half of branch managers and three-quarters of total staff are women). 'In essence it is quite different from other companies I have worked with,' says one adviser. 'It has a distinctive mix of professional and social concerns.' Hence perhaps the seeming schizophrenia over whether it should be seen as a proper bank or not. But this culture is also, as Tugendhat points out, one of the company's real strengths, something which has allowed it to stay 'ahead of the game' on the crucial issue of staff flexibility.
'Staff won't be co-operative unless they feel happy in what they are doing and how they are being treated,' says Tugendhat, 'as other banks have found.'
Even Abbey's rivals concede that the company has played its hand rather well since 1989, broadening its base to offer a range of financial services - personal banking, insurance - while avoiding some of the traditional areas such as corporate and investment banking (another reason why it doesn't see itself as a traditional bank). Not surprisingly, given his all-cards-on-the-table credo, Harley says he knows exactly what he wants to achieve next. 'The first thing is focus: we have to have a clear focus on our business priorities. We need to grow our market share in UK retail financial services over the next few years. I want to double our share in current accounts by 2000, I want to push our cost efficiency ratio down to 40%, I want to increase our share of pensions and life assurance. We have got to grow and there is huge opportunity. No one ever shrank their way to greatness.'
So will he buy? In the last six years Abbey has been an avaricious acquirer, swallowing up Scottish Mutual, HMC Group, Pegasus Assurance Group, First National Finance Corporation, and National and Provincial.
Last year it failed to get Scottish Amicable, losing out to Prudential in a bid battle. But that is a pretty aggressive track record, by any standards. 'I don't think buying is obligatory,' says Harley. 'If you look around the UK there are very few organisations who have bought their way to success. Growing organically and keeping the culture intact is much more important than acquiring companies.'
Really? On reflection that sounds a pretty extraordinary thing to say given Abbey's record. Others who know him suggest that, as the finance director who had to work through the detail of Birch's many acquisitions, Harley was never quite as gung-ho about buying as his boss - 'Peter tried to persuade the board to buy something every week,' sighs one adviser. What about getting bought? Both National Westminster and Barclays are rumoured to have run the rule over Abbey. Does the thought of waking up without a job worry him? 'No,' says Harley plainly. 'The best defence is to run your organisation as tightly as possible so no value is left for a predator. And anyway, the history of acquisitions in financial services is that there is no such thing as a successful hostile bid. You just get the backs of the management up and upset the customers and by the time you have got hold of it the customers have gone.'
And with a market capitalisation of £18 billion, Abbey would only be available to those who could afford to pay £23 billion or more, says Harley.
'These are big numbers and there would be a huge goodwill hit, so very obvious costs on top.' Any predator would also have to show they could offer shareholders a better rate of return, and that would be tough going. No, he concludes, mergers of equals are more likely but even then, they throw up a whole raft of new problems.
'It implies a sharing of power and when you share power you fudge the issues.'
No one doubts that Harley knows what he wants to concentrate on: making Abbey better at what it is good at. Those who deal with the company say he is a popular choice as boss. Tim Wise, corporate finance director at Dresdner Kleinwort Benson which advises Abbey, describes Harley as very astute. 'He is not a deal-driver, no, he is too smart to fall into that trap. He is more mindful of value and getting proper returns.' Another who knows Harley says that his lack of pomposity, compared to most banking chiefs, is remarkable. 'He doesn't have that chief executive-like aura, and I mean this in a positive sense. I think it is a strength.' The downside, says the same source, is that Harley has to watch that his teasing jocularity doesn't land the bank in hot water now he is boss. He cites a lunch Harley had with journalists shortly after his promotion from which the story somehow emerged that Abbey was about to bid for a Scottish bank. The company hastily had to refute the speculation. To some in the City, it looked rather clumsily done. As a result, apparently, Harley is now rather more circumspect when dealing with journalists than with others.
Most put his unpompous approach down to his background. Brought up in Falkirk, the small metal-bashing town wedged midway between Glasgow and Edinburgh, Harley describes his roots as 'archetypally working-class'. His father worked in factories and on building sites. Both his parents left school at 14 but were, he adds, 'always supportive' of him and his sister when it was clear they were bright enough to go to university. Harley read economics at Edinburgh, did the milk round to sniff out a job in business, and accepted an offer from Touche Ross to do his accountancy articles. At that stage, he says, he didn't really know what he wanted to do. He had spent four years in Edinburgh and just wanted to get out.
He came south in 1972. He found articles tough - 'I think everyone hits a low point in articles,' he says. 'It is just a bit dull, but at the end of the day, if you start something you have to finish it.' He left to join the corporate planning department of a small ceramic manufacturer, Morgan Crucible. He stayed there for a year, then baulked at the prospect of moving from London for his next promotion. Instead, he saw a job advertised in Accountancy Age for a financial analyst at Abbey National. He applied and was accepted, joining the building society in 1977.
What was Abbey like then? 'Still quite old-fashioned and hierarchical,' he says, 'but among its peers it was seen as rather different. At the time it was expanding fast, opening a branch a week and there was huge pressure.' Harley worked on a project to build the first computer model of the business: it was the perfect introduction to how the company worked. He says he never really had a game plan for how to get to the top. The cards, as he puts it, just kept falling his way. He worked in Abbey's retail, finance and treasury divisions.
He has never managed a branch but has been responsible for large groups of them. As one of the senior financial managers at the time of the conversion, he was also intimately involved in the complex planning and paperwork that underpinned the building society's change of status.
Tim Clark, partner at Slaughter & May, the City law firm that handled the conversion, says he was struck then by Harley's edgy mix of diligence, grinding through the detail of the prospectus, and by his acid wit. He says he can quite believe that Harley is not conventionally ambitious because Abbey National is not the kind of organisation that produces that kind of executive. 'It is very much a team approach there, that's their culture, and anyway, Ian is a very modest man.'
But are these the qualities that Abbey will need over the next decade as the financial services market consolidates? Some are worried that Harley's biggest challenge is not going to be difficulties like economic and monetary union (EMU) or the millennium bug - two problems of nightmare proportions guaranteed to keep bankers awake at night - but actually just maintaining Abbey's independence. These critics argue that the company's obsession with its distinctive culture may lead it to take its eye off the ball.
One banking analyst cites the curious process of Harley's promotion. More than a year before Harley's appointment was confirmed, Tugendhat announced that Birch's replacement would be an internal candidate, but didn't say who. A handful of senior executives were in the running. It was done so as not to undermine Birch's authority before retirement, but in effect sent out the wrong signals.
'Those executives must have spent most of that year watching each other, worrying about who was going to get it,' says the analyst. 'It typifies an excessive internal focus at a time when if there is going to be any serious challenge, it is going to be external. Abbey National on a European-wide scale is near the top of division one, but it is not premier league.
The world is moving pretty fast now and the strategic decisions to be made in the next few years are going to be vitally important. An excessive internal focus is not a good idea.'
Harley admits that the run-in was not an easy time for him, even though he was the favourite for the top job. 'There was an article about it which had the strapline "It is his to lose". That sums it up. Sometimes I felt I might be a bit like Devon Loch jumping an imaginary fence on the run-in and failing to win the Grand National. But then I shouldn't complain.' He wouldn't have left, he says, if he hadn't got it. 'I am not prone to fits of pique.'
Will money change him? His salary should easily top the half a million mark (his predecessor earned £600,000 in 1996). He has a reputation as something of a careful spender: no second homes, no extravagant hobbies.
He has bought a new house, just 300 yards down the road from his old one in Croydon. It's bigger, he says, and has a nice bit of scrubland at the back, good for walking the dogs. Otherwise not much will change. He is married and has three sons, two of them grown up, who went to the local grammar school. He doesn't really have any hobbies.
He reads travel books and thrillers - Gavin Young, Michael Dibden - but doesn't collect anything. 'I've have never been big on things,' he says.
He does have a rather uncharacteristically flashy Jeep Cherokee, leather seats, joke number-plate (J1 BES), but he explains patiently that, at £30,000, the car is actually very good value compared to a Range Rover and rather 'good fun'.
Talking of which, he is planning a bit of an adventure next year, he says. He has signed up for a sponsored cycle ride across Cuba in aid of the National Deaf Children's Society. No, he adds, he doesn't think there will be any problem in persuading the board to let him go. Birch in his time took part in a sponsored parachute jump. 'If Peter can jump out of airplanes, I am sure I can ride a bicycle,' says Harley.
Anything else? No. He looks rather dour. 'You know, I read these profiles,' he says eventually, 'and I think: maybe I should be into sword-fencing or bobsleighing or something like that?' I think he is teasing. There is an awkward pause while both of us gaze around the room. 'And no,' he adds hastily, 'I haven't redecorated it. I've only just moved in. In fact, the whole building needs refurbishment, and I think we are going to have to vacate it floor by floor.' Why not move? The building, which has been Abbey National's base since the merger in 1944, is beginning to show its age. No, no, he says, this was the headquarters of the Abbey Road building society and he wants to stay there. 'We will remain a West End organisation. You won't see us in the Square Mile,' he says, showing me out.
He doesn't look like a man for whom the cards have just kept coming up.
Instead, he appears rather wary and determined, digging in for the long haul. Who knows what will happen in UK banking over the next few years?
Only one thing is certain: staying put may not be an option.
Born 30 April in Falkirk
Educated Falkirk High School, and Edinburgh University
Accountancy articles, Touche Ross
Corporate planner, Morgan Crucible
Financial analyst, Abbey National
Regional manager South-East, retail operations division, Abbey National
Commercial manager, business development, and later group financial controller, Abbey National
Assistant general manager, finance, Abbey National
Finance director,retail operations, Abbey National
Operations director, Abbey National, later group treasurer and chief executive, Abbey National Treasury Services
Finance director, Abbey National
Chief executive, Abbey National
WHAT PEOPLE SAY
'Ian has considerable moral force and an ability to lead. He is probably a more considered person than Peter (Birch), certainly less impulsive.
But simply because he was very cautious when he was finance director doesn't mean he will be the same as chief executive.'
Lord Tugendhat, chairman, Abbey National
'Ian doesn't waste words. He does have a sharp sense of humour that can be very cruel, but once you realise that's his style it's OK. Anyway, he will only insult you if he knows you very well.'
'Ian is very unstuffy and self-deprecating, and he is extremely astute. He really does understand the nuts and bolts of the company ... He is not a deal-driver, no, he is too smart to fall into that trap. He is more mindful of value and getting proper returns.'
Tim Wise, corporate finance director at Dresdner Kleinwort Benson
'Ninety per cent of the time I spend in his presence he still insults me. But he's earned his spurs.'
A banking analyst
'Ian is a very modest man. I believe him when he says that he is not that ambitious, because that is quite characteristic of the organisation.
But he is very sharp and he seems to be able to deal with the pressure and defuse situations with his wit.' Tim Clark, Slaughter & May.