Economic storm clouds may have gathered rapidly this winter – but Brian Delahunty, head of corporate banking in Ireland at Barclays, is sanguine.
History, he says, is repeating itself.
“My view is that, like 2009, the big guys will come through this better than they were going into it. It creates M&A opportunities for them – and they have the firepower for that.”
The Barclays office in Dublin – the bank’s European headquarters – carried out a review of 900 big corporate clients that shows they are weathering the economic storm. But he raises concern about smaller firms as banking sources for them are squeezed.
“We did a full review of our book there two weeks ago, from a credit perspective. We picked out maybe 10 that we feel we just need to watch a little bit more, but that is because they are in retail or property, for example. But are we really nervous about them? Not really.”
But, though Barclays in Ireland focuses on large corporates, Delahunty has concerns about smaller companies.
“It’s when you move down the food chain – they may not have the capacity to deal with all of these challenges.
“These companies may not have cash liquidity, they may have supply problems, labour shortages, labour inflation. It’s all cost, cost, cost – and they don’t have the margin to consume that cost. What do they do?”
The saving grace for many of these companies, he says, has been the continued strength of consumer spending – despite the economic headwinds.
“If our employment rates stay ok and consumer spending stays ok, that keeps a lot of stuff moving forward.”
In recent weeks big tech firms in Ireland have entered a cost – and jobs – cutting phase.
“We obviously bank a lot of the big tech firms here, and they are very good businesses,” he says. “But they grew very quickly. We lost staff to tech last year and the salary inflation was incredible. People were doubling their salaries to move.
“But when growth isn’t happening they look at their biggest cost – which a lot of the time is around labour. And they grew so fast that they don’t necessarily have all the infrastructure you’d expect of a company of that size. I think they’ll now spend the next while making sure that they get that in order.”
But, nevertheless, Delahunty says he is still seeing an influx of US business into Ireland. Barclays saw a doubling in recent years of clients relating to the support of US companies here, most recently around the regional treasury centre (RTC) model to serve multinationals.
‘But when growth isn’t happening they look at their biggest cost – which a lot of the time is around labour’
“We are very positive about the outlook for 2023 in this regard, as we are in active dialogue with a number of US RTCs who are looking to add more people to their teams in Ireland and are looking to do more business here.”
Delahunty says Brexit is still influencing companies to come here and set up European hubs. Indeed, Barclays itself has done so.
“That wasn’t just a pure Brexit decision,” he says. “We were always thinking of having a European HQ in Dublin or Paris or somewhere like that – because of the opportunity we felt was in Europe, where Barclays wasn’t as active as we’d like. But Brexit probably accelerated that.”
The bank’s presence in Ireland went from a team of 70 or 80 people on Hatch Street to its new office with 350 staff serving customers across nine European markets.
“Effectively we look after business for all the large corporates in Ireland, all the big PLCs and a lot of the big US firms. We look at companies with a turnover over €100m, but if you’re €75m and you’re fast growth, we’re interested.
“Ultimately, we want clients that need help with mergers and acquisitions, capital markets, raising bonds and private placements.
“We don’t do business with companies smaller than that, mainly because of risk. Because the reality is the further you go down the food chain, the more risky it is. Touch wood, we’ve weathered all of the crises of the last 15 years very well – Brexit, Covid, even the property shock.
“You’ll miss out on deals because you’re prudent. But in times like this you then don’t have that nervousness, and you can just continue to focus on the customers and growth, instead of cleaning up messes.
“We feel pretty comfortable about large corporate Ireland. Back in 2008, large Irish corporates banked with mainly just three or four Irish banks. Since then, they’ve moved from four or five to maybe 20 or 30 banks – but they also then access the capital markets to raise that fixed longer-term funding that keeps them nice and secure in problem times.
“But if you go down the food chain, access to capital becomes more difficult. That is where the challenge for Ireland might be – at that SME level.”
Delahunty says the departure of Ulster Bank and KBC is concerning in this regard.
“Ourselves and other international banks will take up the slack from a large corporate perspective – but not at that level. It’s high risk and very low profitability. I think there will be a challenge there over the next five to 10 years.
“They’re the next generation of companies in Ireland – but who’s going to support them on their journey?”