Central Bank demanded answers
The Central Bank has been getting tough on how stockbroking report financial transactions since 2010, writes SIMON CARSWELL, Finance Correspondent
THE CHAIN of events that led to yesterday’s closure of Bloxham, the country’s oldest stockbroking firm, began last Wednesday morning when the Central Bank demanded answers to questions on certain financial information.
Following what it has described as “a definite line of inquiry”, the Central Bank sent questions to Bloxham and demanded that they be answered within 36 hours, by close of business on Thursday.
The Central Bank has been getting tough on stockbroking firms since 2010 on how they report financial transactions. Four firms have been fined a total of €275,000 arising from inspections into their failure to report transactions properly to the regulator.
The sequence of Central Bank inquiries came to a head on Thursday.
In response to the queries, Bloxham called the regulator late on Thursday and requested an immediate meeting.
Managing partner Pramit Ghose and two other partners from Bloxham’s arrived at the regulator’s Dame Street office to inform them that income at the firm had been overstated for several years dating back to 2007.
It is understood that the overstatement relates to a small number of specific issues relating to the reporting and accounting of income. One such item may relate to a trading loss that had been booked not as a crystallised loss but as a debt still due to the firm.
Based on an initial examination, the over-statements relate to 2007, 2008, 2009 and last year, but not for 2010, though investigations are still going on into the exact detail of the irregularities.
The effect of the overstatement was that the firm’s capital reserve has been in effect wiped out. Bloxham was obliged to maintain at least €5.8 million in reserve to trade as a regulated stockbroker.
The overstatement is “sufficient to put a big dent in the regulatory capital”, said a well-placed source. It is estimated at between €4 million and €5 million, said another.
The Central Bank said that at 5pm last Friday it imposed directions on Bloxham to cease all regulated activities with immediate effect.
The firm was given a deadline of yesterday morning to find the required capital to protect the business or a buyer who could provide that financial cover for the clients.
Frantic discussions took place over the weekend following Bloxham’s call to rival firm Davy late on Friday to see if they were interested in buying the asset management business given that Davy had agreed a deal in March to buy the firm’s private clients business.
There had been some contact with another rival firm Merrion Capital which had been interested in Bloxham’s wealth management and bonds business in the past.
But a deal could be transacted quickly with Davy given that the firm had already carried out due diligence for the deal to buy the private client business in March.
Time was of the essence as the Central Bank’s order on Friday left the firm unable to trade as a regulated entity without the required regulatory capital. This would put the client funds potentially at risk which would have forced the Central Bank to take more wide-ranging action against the firm. Des Carville in Davy’s corporate finance team worked on the deal for that firm.