Developer in Anglo bond deal suing Davy and 16 former employees

Belfast property developer Patrick Kearney has launched a lawsuit against Davy and the group of 16 former employees who were on the other side of a 2014 bond deal with the businessman that was at that heart of a Central Bank fine and rebuke last month.

The development comes at a sensitive time. Initial bids for the stockbroking and wealth management firm are being called before close of business on Friday.

High Court filings submitted on Tuesday show that Mr Kearney and his Kilmona Holdings company have sued both Davy, the firm, and the so-called O'Connell Partnership, comprising the 16 former employees, including top executives, who were involved in the controversial trade of junior bonds in failed lender Anglo Irish Bank.

Mr Kearney’s Kilmona Holdings previously sued Davy in 2015 in relation to the deal, settling his case in early 2016 for €1 million, according to sources, a lower figure than previously believed. A spokesman for Mr Kearney declined to comment.

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A spokesman for Davy said: “Davy is committed to engaging constructively on all reasonable complaints and claims. However, as this matter was already the subject of a comprehensive full and final settlement agreement between the parties in 2016, Davy is obliged to defend this case.”

Sources said Mr Kearney had waived any right as part of the settlement to pursue a future case against Davy or the O’Connell Partnership in relation to the deal.

Maple 10

Mr Kearney, who was part of the so-called Maple 10 investors who bought shares in Anglo in 2008 with loans from the bank, was separately lent money by Anglo the same year to buy junior bonds in the company with a par value of €27 million.

Loans secured on the bonds were subsequently sold to an affiliate of US debt investment firm CarVal, called Stapleford Finance. Mr Kearney subsequently engaged LeBruin Private, co-founded by former Anglo Irish executive Tom Browne, in 2014 to help him deal with his debt to Stapleford.

Following discussions involving Mr Kearney, LeBruin and Tony O’Connor, an employee of Davy at the time, it was decided Davy would sell the bonds to discharge the €2.36 million debt to Stapleford and leave a profit to be divided between him, LeBruin and Davy.

The bonds were sold for 20.25 cent in the euro, realising a total price of about €5.58 million. The consortium of 16 Davy staff – including former chief executives Brian McKiernan and Tony Garry and former deputy chairman Kyran McLaughlin – would emerge on the other side of the trade as the buyers of the bonds, a fact that was unknown at the time to Mr Kearney or Davy's own compliance function.

Undervalued

Mr Kearney claimed in his 2015 action that the €5.58 million price significantly undervalued the bonds. He said he met with an investment banker on the day the deal went through in November 2014 who offered to buy the bonds at 32 cent each. He said that Davy persuaded him that the original deal for 20.25 cent had already been agreed.

The Central Bank fined Davy €4.1 million in relation to the deal last month.

Davy subsequently put itself up for sale as it seeks to rebuild trust in the business and address concerns about former senior executives involved in a bond-deal scandal remaining as major shareholders.

Bank of Ireland is widely seen as the most likely suitor. Swiss wealth management group Julius Baer is also said to be interested, as is US financial services giant Stifel.

UK brokerage Numis, which is looking to set up a post-Brexit equities trading hub in Dublin, is also understood to have received an information memorandum of the Davy sale, but it has no interest in the wealth management business. Brewin Dolphin, which was also mooted as a potential interested party, is understood to have decided not to proceed with a bid.