There are 14,000 banks in the 30 most economically advanced countries.

All of them make their money by lending to customers. Each of them needs to raise capital for the asset side of their balance sheets in order to do this. Half of them are a betterthan-average credit risk. Why not lend to banks? Why not act as a bank for the banks?

That's the question Tiarnan O'Mahoney, chief executive of International Securities Trading Company (ISTC), a specialist lender to the banking and financial services sector, was asking himself when he was head of treasury and chief operating officer at Anglo Irish Bank, where he worked from 1985 until he started his new firm two years ago.

One thing Anglo had to do from 1994, he says, was to raise a lot of capital to support its lending. The standard way to do this at the time . . . as indeed it is today . . . was to go to the equity markets and do a rights issue. The bank would approach an investment bank such as JP Morgan, which would bring the bank out to market on a best efforts basis, structure a deal and seek investors.

But to O'Mahoney's frustration, deals sometimes fell through or were postponed, investors took an interest in other sectors, and the investment bank wouldn't put a hand in its own pocket because that wasn't its business. He needed a source of non-equity capital, but nobody was providing it.

"As a customer I could see things that could be done better if you just took this bit and specialised, " he says. "There are 8,000 Anglos around the world . . . banks who need capital . . . and I could see how a specialist could provide for that.

"You could never find anyone to say 'if we like your deal, we'll put your deal away, it'll be a done deal'. ISTC does that, " he says. "We do our due diligence and bring it out to market, but if the market doesn't take it, we'll take it.

I could never get that in Anglo, because there was nobody providing it."

Now this black swan is providing it on a proprietary basis to 160 banks in 27 countries.

The returns so far have been very encouraging.

Last month ISTC reported earnings of 6.8m for the half-year to March, a 300% rise over the same period in the previous year and more than the 6.5m the company I earned in all of its last fiscal year. On foot of the good news, ISTC revised its full-year profit target from 13.5m to 15m on the back of a loan portfolio that has quadrupled to 1.9bn in the last 12 months.

But this is nothing O'Mahoney didn't expect.

"The really good news is not the last or the next six months, but it's the growth story for 2008 and 2009, " he says. "We have a capital base which will allow us to grow to about four times our current size. We have funding in place ready to go which will double our book straight away, and we have a management team capable of managing a book five times current size."

When O'Mahoney put ISTC together with executive director Frank Gaynor, an old contact at JP Morgan, they built for scale. That was the logic behind marshalling 220 multimillionaires . . . said to include Sean Quinn, Denis O'Brien and former Anglo chief Sean Fitzpatrick . . . for a 165m equity fundraising round to launch the company in March 2005.

And it's why ISTC's 5.7m in operating expenses is still high relative to profits . . . a deliberate policy, according to O'Mahoney, who is confident everything is already in place for four years of expansion.

The pitch for this simple and obvious business, though, was a little bit trickier than its seamless two-year growth story lets on. In early 2005, O'Mahoney had just come out of Anglo after David Drumm had succeeded Sean Fitzpatrick at the helm. He was one of a clutch of top executives in line for the job but, once passed over, he struck out on his own. He had nothing but a concept: underwrite banks' capital needs on the back of a strong equity base, high quality assets and shrewd credit analysis.

"When I was raising the equity, I asked investors to put money into a business that had never been done before, that was being set up brand new, that did not have a management team or an office, and to follow a concept that had never been proven, " he says. "In March 2005 that was the conversation. So there was an act of faith made by investors at that point. That was why I targeted investors who could afford to take a long-term view. It wasn't the widows and orphans brigade."

O'Mahoney admits that many of the original investors probably lacked an appreciation of the finer technical points of tier 1 and tier 2 capital . . . and some later revealed themselves to have an understanding of the business that differed radically from his own . . . but they saw the same gap he saw and how it could profitably be filled.

ISTC now has a crew of 20 who do understand subordinated and senior debt and who had been doing this kind of business on the front line in top institutions such as Goldman Sachs, Nomura and Merrill Lynch. O'Mahoney lured them with the promise of equity: "There are a lot of millionaires working here."

ISTC has now passed the start-up phase . . .

its market capitalisation of about 625m would make it the 25th-largest quoted company . . . and O'Mahoney reckons now that it is crossing the 2bn threshold in its loan portfolio, the early risks are gone. "If you can do 2bn worth of business, you can do 4bn or 6bn, " he says.

That rapid acceleration says a lot about the quality of ISTC's business plan and the skill with which management has executed it, but it also points to a long running start. The mad December-to-July dash from prospective Anglo chief executive to the top of a 165m pile of equity in a totally new venture would probably be too much even for a financial Olympian like O'Mahoney. But he bristles at the suggestion that, when he was in the running at Anglo, he was actually limbering up for a different race at ISTC.

"I never deal in ifs or buts . . . I won't even go there, " he says, looking down and clenching his jaw a little. "I think it's inappropriate. I'm very close friends with the guys down in Anglo. I made a deal with myself that I wasn't going to comment on Anglo after I left, and I'm asked regularly."

One legacy from his old bank that might just follow him is the problem of managing expectations. ISTC is planning to list on the London and Dublin stock exchanges at the end of their 2008 fiscal year in September . . . not to raise money, but for transparency and shareholder value.

Like Anglo, ISTC regularly outperforms expectations. That's fine as long as it's trading on the grey market . . . even as it's run as if it's already a listed company in terms of its accounting and reporting . . . but once you're out on the stock market, sentiment rules.

Anglo found this out a few weeks ago when it delivered record profits but its shares took a 6% dive anyway because investors didn't like the width of its 9.2bn loan pipeline.

"If someone wants to maximise profits in the short term, don't buy ISTC shares, " O'Mahoney says. "Confusion arises sometimes where companies speak about what they'll achieve next year and don't do it, then talk about the long term. A lot of people speak about long-term shareholder value because they've failed in the short term."

Nonetheless, he's not shy in his predictions. "When we get to a 10bn loan portfolio, we should be producing about a 30%-plus return on equity and we'll still be only 0.1% of a 1 trillion market, " he says. "Whether we make 15m or 16m shouldn't matter . . . what matters is that it gets us to 35m on the way to 45m on the way to 55m."

So, if this business is so simple and obvious, where are the other Tiarnan O'Mahoneys?

"They're still in a bank, " says the man himself. "The frustrated chief financial officer, CEO or head of treasury . . . we're going to make his life an awful lot easier."

TIARNAN O'MAHONEY

CV

Age: 48
Family: married to Felicity with three children, Saoirse, Faolain and Riain
Education: BComm and MBA from UCD
Career: founder and chief executive of International Securities Trading Company since 2005; worked at Anglo Irish Bank from 1985 to 2004, where he eventually became chief operating officer; began his career at IIB after completing a Bachelor's degree in Commerce at UCD in 1981; also chairman of the Pensions Board and recently appointed president of the Chartered Institute of Management Accountants.
Hobbies: sport, particularly GAA