The greening of IFSC-based Depfa Bank will speed up as it sells its German business and plans its attack on the US funding market from its Dublin headquarters, writes Una McCaffrey

There is a half-joke that circulates around the offices of Depfa Bank in Dublin's International Financial Services Centre (IFSC) that would strike a high degree of fear in the heart of any new recruit. It relates to how much money the bank makes every year and how many staff it needs to generate this kind of profit. Last year, the figures were quite stark, with just 350 employees needed to generate profits of €370 million.

"We like to see that every employee makes at least one million after tax," jokes Depfa chairman and chief executive Mr Gerhard Bruckermann. It is hard to know whether to laugh or recoil in awe.

Laughter seems the best option, particularly since Mr Bruckermann, the man who is credited with lifting Depfa to where it is today, is in jovial form. As content to discuss the merits of planting trees on his fruit farm in Spain as his bank's ambitious US expansion plans, he is a master of putting an audience at ease.

And as audiences go, Depfa's are among the most critical, with the bank not only answerable to its shareholders but also to the high-powered bodies that invest in the jumbo bonds it regularly issues for funding purposes. Mr Bruckermann does not seem fazed by his position, however, perhaps because it is a job he tailored himself. Depfa is, after all, a public-sector finance bank chiefly because Mr Bruckermann decided it should be so.

The move looks to be working out, with last year's profits on track to be surpassed by an after-tax return of about €400 million this year. The cost/income ratio at the bank, which is listed in Frankfurt, stands at 20 per cent, meaning Depfa gets back income of 1 for each 20 cents it spends. It is a record of which any bank, never mind one with roots in Germany's persistently lacklustre economy, would be proud.

Depfa as it stands today is, however, more of an Irish bank than anything else, with its headquarters in Dublin's IFSC since 2002 and all key decisions made from the banks of the Liffey. It is an identity that Mr Bruckermann and his colleagues have worked hard to cultivate (Tip: the best way to annoy a German banker whose bank has its headquarters in Dublin is to persist in calling him a German banker). And with the sale of Depfa's remaining German-based bank currently under way, the greening of the group looks to be progressing well.

Mr Bruckermann departs from the clichéd image of the German banker with tales of youthful left-wing rebellion that saw him frequently clashing with his school.

He retained his independent attitude into university where he studied law, eventually emerging to pursue a professional qualification as a judge. He began a short career on the bench at the ripe old age of 27, forming part of a judicial team in an appeal court.

He tasted various kinds of law at this stage, but the area that most captured his imagination was immigration. It was an issue that was prominent in German debate at the time due to an influx of Lebanese asylum-seekers fleeing the civil war in their country, and one that eventually made him disillusioned with the system.

He eventually gave up law and took up a banking position. He took to it immediately. After his initial position with the Savings Bank Association, he spent seven years with West LB before moving to global giant Deutsche Bank for another eight years.

In 1991, he was lured to Depfa with a board position in the treasury area but he immediately began to tailor his own job by attempting to propel the bank into public-sector finance.

And, in a way, it was somewhat obvious, with Depfa simply tapping into its 1920s heritage of a not-for-profit issuer of mortgage bonds and updating it for the modern world by using the bonds to fund public-sector lending and budget financing, this time for profit. And the beauty of the business is that its customers offer little or no risk of default.

This semi-departure coincided with the bank's flotation, which saw Depfa spin off its property arm as a new and separate bank. As soon as the new structure was bedded down in 2002, the larger of the two resultant entities shifted its headquarters to Dublin. In effect, this saw Dublin-based Depfa-Bank Europe, which had been operating from the IFSC since 1993, merging with its parent and becoming the holding company for the group.

This process was made easier because the IFSC bank already had a full Irish banking licence, although Depfa retained its stock-market listing in Germany where it kept a public-sector lending business.

The decision to set up in the IFSC in the first place had its roots in a desire to expand into the European public-sector lending market outside Germany.

The move to Dublin offered a number of benefits in this regard, chief among which were the English-speaking population and the low taxes on Irish profits.

"You don't base your decisions on tax," says Mr Bruckermann, noting Depfa would have headquartered in Cyprus to take advantage of a 4.25 per cent tax if that had been the main consideration.

The IFSC was also at that stage still a low-cost location for operations such as Depfa's, thus helping the bank to maintain its tradition of offering low-margin lending. However, with higher costs now prevailing, Mr Bruckermann accepts that the days of international financial companies housing hundreds if not thousands of processing staff in the IFSC will not last forever.

He points to statistics showing that the Republic has the second-highest GDP per person in the EU after Luxembourg. This leaves us at a stage, he believes, where we need to move into "value-added" production rather than pure processing.

"Like London, it's important that a financial centre gets the critical mass to live of itself, " he says, confidently predicting that the IFSC will have longevity. He sees little threat to Dublin's financial centre, for example, from tax innovations in EU accession states such as Estonia.

And it is not as if Mr Bruckermann has no experience of the area: Depfa has been operating in the EU accession states for five or six years now, mainly by underwriting and placing debt.

The bank is also keen to get involved in the funding of infrastructure in the accession states. Mr Bruckermann says it is important to look at public-private partnerships (PPPs) not just as a way of financing a project away from the budget but as a method of providing necessary services to the public in an efficient way.

In the Republic, he says, Depfa is by now covering almost all counties with its infrastructure and budget-financing offerings to the public sector. Mr Bruckermann acknowledges that this business (which was worth €100 million last year) has been won at the expense of domestic banks but he makes no apologies, saying simply that it makes sense because Depfa has better access to a low-cost funding base. In a similar vein, he says Depfa would be first in the queue to finance a metro system for Dublin if one were to be designed in the future.

Mr Bruckermann's current focus is more specific than international expansion, however, as he devotes most of his attention to offloading Depfa's remaining German public finance bank.

When the decision to sell this bank was first announced in mid-February, it was reported that Depfa wanted to use the proceeds and the freed-up capital to fund expansion in the US.

Mr Bruckermann disputes this slightly, saying it is more like a typical M&A situation, whereby part of a company would generate more value if it was sold and became part of another company.

He says the German disposal comes principally on the back of the success of the bank's Irish asset-covered securities (ACS) business, an operation that launched its first bond early last year. In 2003, ACS issues backed by public-sector debt at the bank totalled €9 billion, with a further €5 billion written so far this year.

Despite an initial idea thatthe Republic's still-new ACS legislation would be used mostly by Irish mortgage lenders, Depfa remains one of just a handful of institutions to make an issue in the area.

Mr Bruckermann is tight-lipped on potential buyers for its German business, but says interest is keen, particularly from other European players. The bank, which will probably be sold before the end of the third quarter, is a substantial player, with about €80 billion in assets last year and about €62 billion outstanding in long-term funding.

The sale is due to release about €1.3 billion in group capital, with analysts estimating a book gain of about €400 million on the sale.

After this, Dublin will be the "clear" head office, with Depfa set to combine the distinction with a concerted expansion plan in the US. The bank has been dipping its toe in American waters for about a year now, "independently of the Pfandbriefe Bank sale".

"The doors are quite open in the US at the moment," says Mr Bruckermann. "They need new lenders," he says, referring to the current non-federal municipal borrowing requirement of about $380 billion (€319 billion) each year. "We're learning as we go along, as we do in any other country."

The step has so far allowed Depfa to do about €7 billion in US lending, with a further €8 billion in the pipeline. The plan (or "ideal") is to have an exposure of about €180 billion in the US within five to seven years. This compares to the exposure of €105 billion that the group will have in Europe after the German sale is concluded.

Happily for the IFSC, the business is to be conducted mostly out of Dublin, via a small number of US regional offices, thus underlining Depfa's commitment to being an Irish bank above all else.