St George's New Boss Begins To Find His Feet

The Age

Saturday November 17, 2007

Marc Moncrief

The head of Australia's fifth-largest bank is quickly making his mark, writes Marc Moncrief.

PAUL Fegan is laughing.

Leaning back in his chair in a small, white-walled room at St George Bank's new Melbourne office, the boss can't help but chuckle as he fawns over the dark wood floors and glimpses of Port Phillip Bay in what was, until recently, a block occupied by UBS.

The date is November 2 and Fegan has just delivered his first annual result as St George's acting chief executive. He has been "acting" for 11 weeks, and it will be another 11 days before the board will confirm his reign, but his demeanour is that of a boy who sees new toys everywhere.

True, the premises aren't expansive, but they suit the bank: simple, neat, classy, unostentatious. Maybe a bit too humble for the big investment banking boys, but "we don't get into all that (hubris)", Fegan laughs.

He laughs again when he is offered a choice of coffees. In Sydney, he says, they are lucky to get instant. Forget about espresso.

"Our head office . . . you wouldn't call it a type A building," he says, ordering tea.

"Maybe a C . . . BBB-rating . . . Aspiring, but middle-class."

Out in what Fegan calls "subsidiaryland" - that is, anywhere but NSW - the bank always seems to have nicer digs. There is a bit of a metaphor there. St George has been calling the bottom of the NSW economy for years, but this hasn't happened yet.

About 44% of the bank's receivables are outside its home state. And while the bank has been expanding strongly, the regional bias hasn't changed much over the past year.

Middle market receivables across all regions grew by 26.5% last year compared to 12% industry-wide. Outside of NSW, that growth was 30.3% - 41.6% in Western Australia.

Still, 56% of total receivables (both residential and middle market) are still in NSW, down just 1 percentage point from 2006.

St George is often thought of as the most Sydney of Sydney banks, but Fegan is still relatively new to the harbour city. He was born in Dublin. His parents left Ireland for Australia in 1972, when Fegan was 10. He was raised in WA and gained his MBA in Melbourne.

He spent nearly half his life working for National Australia Bank, latterly as a director of both Yorkshire Bank and Clydesdale Bank in Britain.

"Astute financial planning is not necessarily the first thing you would associate with Australians," he says.

So began "The mortgage wizards of Oz" an article in the June 25, 2000 edition of London's The Independent newspaper. Who was the featured banker causing such a pompous re-evaluation of Australians' intellectual abilities in the City? Paul Fegan.

During Fegan's term, NAB was a pioneer in bringing mortgage offset accounts to the British market. The Independent article was his first foray into the public sphere.

He left NAB in 2002 at the end of a three-year British stint because, though he was at the top of the subsidiary, he wanted to be more engaged with core decisions. He met St George chief executive Gail Kelly over a video link and soon he, his wife and two children were headed to Sydney.

"I came to a very small job at St George," he says. "That tells you something about Paul. Paul swapped the big job in the subsidiary for a small seat in a troubled portfolio at the top table."

Fegan bonded fiercely with St George, its culture and its chief executive.

Kelly, who departed recently to head Westpac, remains an important figure. In fact, he says, he was just talking to her as he got out of the lift.

"If you say to me 'Paul, were you shocked Gail resigned?' I would say 'No'," he admits. "She's an outstanding person with lots of capability and there are vacancies in the marketplace. Absolutely. It was not only possible, it was probable."

A former school teacher (of Latin at Zimbabwe's prestigious Falcon College) who increased St George's net profit four-fold in four years, Kelly was and remains a banking anomaly. Ambitious, personable, successful and female, she personified St George's pitch to the ascendant middle market.

Fegan was on a plane from Melbourne to Sydney when chairman John Thame learned Kelly had signed to replace Westpac chief executive David Morgan and would be leaving the culture she had come to exemplify.

"I got off the flight and the chairman rang," Fegan says. "He said, we just had a board meeting and you've been appointed CEO." Fegan immediately called Kelly to congratulate her.

But it didn't feel right to pretend the loss of one of the most enigmatic personalities in the industry wouldn't affect the bank. Fegan says it would have been "incredibly disrespectful" for the change to have been announced to staff at the end of a long day, in an impersonal e-mail saying: "We wish Gail well, back to business".

"If you're Mary, part-time teller, 47, five kids - you got a phone call from Gail (saying) happy birthday or you got an e-mail every Friday saying (for example) 'my kid's got an L-plate' - and then you're having your Weeties and you see her on Sunrise saying 'hello'. It's warm and friendly, and she's got a W on her jacket - people would say 'S--t. Maybe I feel a bit betrayed'."

Fegan says it was for this reason - out of respect for Kelly and for staff - that the board waited four days before announcing his assent to the top spot. It came in a web video on the bank's internal system.

"The script was 'we wish Gail well, a very public profile for the bank, great personal friend, great personal mentor'," Fegan says. "The legacy of leadership is what's left behind. What's been left behind is a fundamentally strong business, a great management team and it's business as usual."

Weeks later, at a function for the Business Council of Australia, the pair met on the banquet floor and were challenged for behaving so cosily towards one another.

"I said 'what you see here is two very good friends'," Fegan says. "Gail laughed (and) put her arm around me."

So full was his respect for Kelly - and for the position he had been asked to fill - that he says he didn't feel right moving into the CEO's office right away. Certainly, it didn't feel right to move in as "acting" CEO. It was only when Thame insisted that Fegan relented.

Fegan still has not stamped his persona on the room. There are no pictures of family, no diplomas or accolades hanging on the office walls. Since his official appointment to the job he has received some cards of congratulations, but in general it has been only him and his briefcase in the room.

But while he hasn't yet got comfortable in his new room, he has already stamped his signature on the bank. On Wednesday, the day after being handed the unfettered reins, Fegan moved immediately to place a $766.5 million capital raising. The move was bolder and more decisive than the plan he had presented just two weeks earlier to underwrite the bank's dividend reinvestment plan and was applauded by analysts wondering how the new leadership would lead.

He has already announced intentions to raise another $400 million and the bank is racing to keep up with the loans it is writing.

The $1.2 billion combined total Fegan plans to raise should leave $500 million in excess capital that the bank says will back risk-weighted assets (RWA) worth about $8.5 billion. But if St George continues to grow RWA at its current pace - 19.3% last year and $1.3 billion in October - the capital could be spent by autumn.

For now, though, Fegan is laughing. He took a big leap to get to the big table at a bank that is growing strongly.

Now he is sitting at its head - and loving it.

We were wrong

IN OUR report "St George's new boss begins to find his feet", published on Saturday, November 17, St George chief executive Paul Fegan was quoted saying "Astute financial planning is not necessarily the first thing you would associate with Australians". This quote was taken from an article in The Independent newspaper and should not have been attributed to Mr Fegan. The error was made in production.

© 2007 The Age

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