'We will flourish even in bad times', Irish Examiner - May 30. 2008
by Peter Cluskey
How quickly we forget. As the global credit crisis bites and the economy slows to a calmer level of growth, a Martian, landing in Ireland today, might be forgiven for thinking this is a country emerging from a golden economic age that has streched back without interruption for several decades, at least - whereas, the reality is that its just seven or eight years since our last serious economic shock.
Remember the dot.bomb - the bursting of the dot.com bubble that followed the extraordinary over-inflation in the value of web-based companies worldwide? Arguably, as early as 1999, but certainly between 2000 and 2003, technology stocks took a dive and telecoms and internet companies, in particular, went into a worldwide slump. Here, there were closures, lay-offs and recruitment freezes.
Luke Nestor was in the thick of it. A pioneer in Irish software development, he joined this brother, John, as a partner in Nestor Software in the mid-1980s, and successfully developed a number of bespoke banking products, including a collateral management system for National Irish Bank. Companies worldwide were scrambling to get online for the first time, and in 1999 the Nestors changes emphasis and set up Rockall Technologies to supply that voracious market.
"When we set up in 1999 with BES funding, it was just before the real craziness of the dot.com world hit home," he says. "For instance, we had three or so clients in the States who were supplying us with a lot of work, and two of those went out of business. So, suddenly, we went from doing very well to wondering how we were going to survive.
"The problem, essentially, was that people and institutions were investing in companies at 30 times their value, and even that core value was questionable. They were investing in ideas - some of them good ideas, in principle, but without looking at the practicalities of how to commercialise them. And when people came to their senses and the investment stopped, companies that needed more money to continue to develop found themselves with major cash-flow problems - and going out of business."
Rockall Technologies was almost one of those casualties. "Absolutely," says Nestor. "We were on our knees, to be honest. We were still relatively small, but our staff numbers fell from 12 to four or five. The whole basis of our business, by then, was service-based, building web applications for companies who needed them. Except that nobody needed the projects in-house. There's no doubt about it, we thought we were going to close.
"The irony is that dot.com is back with a vengeance, of course. All the companies that were in the making then, we take them for granted now, the likes of Google and Amazon, Lastminute.com ... But an awful lot of very good ideas never made it."
Rockall didn't close, of course. It fell back on doing what it had done before "the craziness" took off. Nestor dusted off the original banking software they'd been upgrading and maintaining for National Irish Bank 0 and tried to interest wider clientele.
"My brother, John, had opened his own consultancy at this stage. And when I looked at the business, I realised this software was its only asset, really. So, I picked up the scraps, and, through being either very fortunate or very persistent, managed to sell it to three major customers in a short period: AIB, Bank of Ireland and EBS."
That's what saved, Rockall Technologies. Five years later, it has offices in Dublin, in New York and in Jacksonville, Florida. In the US, its customers include Watchovia, the fourth largest banking chain in the US, and the Federal Home Loan Banks. And, in Europe, they include the National Australia Group, apart from the Irish banks.
Its key product remains the collateral management software that Luke Nestor built for National Irish bank in 1998. Known as SAM (securities/collateral activity management), it automates virtually 100% of back-office activity for loan and collateral administrators in banks - from generation of a loan-offer letter to collateral release when the loan is repaid.
SAM has since been joined by STOC (systematic tracking of collateral). This extends SAM to include the tracking of so-called "liquid collateral" for loans; in other words, stocks and shares or cash. It allows the bank to monitor changing loan-to-value ratios for collateral - and thereby manage its risk.
"The value of the collateral is a critical issue in both our products. They ensure that collateral is valued when it needs to be valued: with stocks and shares, for instance, that means daily, whereas with property it might be every three months, six months, year or two years. They continually compare the value of the loan." They also provide a complete audit trail for Sarbanes-Oxley and Basel 11 compliance.
So, will the credit crunch affect this business? "I believe we will flourish in bad times," smiles Nestor.
"What the credit crunch has done is to highlight the crucial importance of risk management in the whole area of collateral tracking. And, from a collateral perspective, we're very much at the heart of risk management. That's why I believe the times is right to move into the capital markets and investment banks - where risk and compliance are now the two key words."
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