Interview: The man who won the lottery

IAN HARLEY doesn't think much of the paintings on the walls of his office in London's Baker Street. The series, folksy oils of some of Britain's abbeys - including one of Westminster Abbey - are, says Abbey National's chief executive, "quite ghastly". But Harley has no plans to change them, for the time being at least.

Since he took up the job in March, he has been busy trying to keep costs down at Britain's fifth biggest bank, so it wouldn't look good if he embarked on a grandiose redesign of his own office. "Look what happened to the Lord Chancellor when he tried to redecorate his office," jokes Harley, referring to the recent scandal over the cost of Lord Irvine's wallpaper.

Harley's predecessor, Peter Birch, led the bank through its flotation in 1989, the first building society in this country to demutualise, and then proceeded to spearhead the bank's expansion with the purchase of the life assurer, Scottish Mutual, and the National and Provincial building society.

Harley's contribution so far has been to concentrate on keeping costs down as competition in the core business, mortgages, hots up. His strategy is twofold.

"Our premier focus is improving the top line - no business ever shrank its way to greatness," he says in a soft Scottish accent. This means focusing attention on new businesses, such as life insurance, pensions and credit cards.

Second, Harley is striving to improve the bank's cost efficiency, which is "just doing things smarter really", he says.

Wherever plausible, the bank has been establishing "single centres of excellence". For example, when Harley joined the bank in 1977, it had 800 mortgage centres because every branch maintained its own mortgage files.

"Now we've got five in different parts of the country," he says, and he claims this saves 5 per cent of the cost of mortgage processing a year. The bank has also stepped up productivity at Scottish Mutual.

"Scottish Mutual's cost ratio when we bought it was 140 per cent. Nowadays it's 75 to 80 per cent," said Harley.

Customers are also doing their bit by taking advantage of electronic means of payment. Over the past year, over-the-counter transactions at Abbey National branches have gone down from 29 per cent to 21 per cent.

But cost-cutting doesn't mean the bank has been shedding staff. "When we came to market 10 years ago, we had 9,000 staff: now we have 25,000.

"People are doing different things and they work at different prices, but Abbey National is a growing organisation. Anyone who is willing to learn and do their job well has a job for life as far as I'm concerned. It's hard enough trying to find and recruit good people," he says.

All that said, is he not just a little worried about the current financial turmoil and the possible onset of a recession? Mortgage lenders, the biggest of which is Halifax, are, according to city analysts, poised to under- perform commercial banks on the stock market as rising competition hurts lending margins. Lower interest rates are also going to hurt these companies.

Abbey National may be better protected than most, however, as it relies on mortgages and deposits for only half of its income, with 25 per cent coming from its securities and currencies business and a growing proportion from insurance.

"We always felt we were a good bank in bad times," says Harley, pointing out that even the bank's Treasury business is really an asset management business, and that the bank doesn't do any propriety trading with its own capital.

"In 10 years of treasury business, we have never had a credit loss," he says.

Much has been made of the fact that even though he heads the country's second biggest mortgage lender, he hasn't persuaded his parents to buy their council house in Falkirk, Scotland.

"They've always rented and now they're in their seventies, they feel it's far too late. The fact they have never had a mortgage is a matter of pride. My mother said: 'No,' and that's it. End of conversation."

Harley's father was a coal miner and he was the first person in his family to go to university. He was educated at Falkirk High School and Edinburgh University. He said he joined the Abbey because "they were doing something worth while - helping people do something they wanted to - home ownership."

Harley now lives in Croydon with his wife and three sons, taking the train to work every morning.

The bank's finance director before taking up the top job seven months ago, Harley is modest about his achievement. Before joining Abbey 20 years ago as a financial analyst, he was an accountant at Touche Ross, then held a number of top jobs at Abbey National.

"I won the lottery," he says. "There were plenty of guys around who were just as good as me and worked as hard as me but who never had the breaks." There is, he says, no magic formula for working-class kids like himself to make it to the top.

"There are certain things you can do: unless you are extremely lucky, it usually makes sense to get a decent education."

He will have plenty to chew over when he takes his holiday in January. Harley is going on a sponsored bike ride across Cuba in aid of a charity for the deaf.

Analysts are watching closely to see whether Abbey, which has pounds 4.8bn in surplus capital, is going to make any acquisitions. Harley says if it does, they won't be big ones "because the track record of big deals in all markets at all times is patchy to say the least". Lack of forward planning, big egos and the coming together of two different corporate cultures are the reasons why Harley believes big mergers don't work.

The bank recently said it was in the running to buy the insurance company, National Provident Institution. Harley said it is unlikely that the bank will win the prize, though.

"They are certainly on the market and we have expressed an interest in expanding our life and pensions business, but NPI expect to be bought by a foreign company or a UK company that wasn't already active in the pensions markets through independent financial advisors. I think we fall on both counts."

That said, Harley has a lot more pressing priorities before he gets round to decorating his office. Maybe his oldest son, studying interior design at the Surrey Institute, could do it.

"I think he would rather do a branch layout with ergonomics and lots of stainless steel," says Harley. Well he might at least get rid of the paintings.