Another chapter in Goggin's unhappy tale

Business Opinion: The sale of Davy Stockbrokers back to its management looks like the latest chapter in the unhappy tale of Brian Goggin and his incredible shrinking capital markets division.

Despite his achievements in other spheres, Goggin seems hell bent on selling the profitable broker while his other flagship brand, Bank of Ireland Asset Management remains on life support.

The problems at Bank of Ireland Asset Management are an old story and the bank would appear to have started to turn the business around with the injection of new blood. But the decision to sell Davy is worthy of some scrutiny.

The consensus is that Goggin had little choice but to do a deal with Kyran McLaughlin and the other senior managers of Davy when they came looking to buy back the business sold to Bank of Ireland over a decade ago.

The only issue was the price. The conventional wisdom being that stockbroking is quintessentially a people business and if the top people want a piece of the action then you have got to let them have it or they will walk. This was the implicit threat behind the offer from Davy, although both sides stress it never really came down to such bare knuckle stuff. And the question that Bank of Ireland shareholders can fairly ask is why not? As things stand, Bank of Ireland has a handsome share of the highly lucrative markets for corporate finance work, private clients services, institutional equities and bonds. The business is done through three main entities; Investment Bank of Ireland, Bank of Ireland Private Banking and Davy.

The split between the three and even the total value of the business is not disclosed in any meaningful way in Bank of Ireland's accounts. But what is obvious is that Bank of Ireland's share of these markets is going to shrink. In addition, its two remaining businesses in this space will face a formidable new competitor, with arguably the best franchise in the market. That competitor will be called Davy.

Investment Bank of Ireland will also loose a key distribution channel for its corporate finance work such as stock market flotations.

In return the bank will get €320 million that it arguably does not need and might find hard to put to use in a manner that is more productive than owning the biggest stockbroker in one of the world's richest countries in per capita terms.

The alternative was to have toughed it out with Davy. Undoubtedly, the principle players at Davy would have walked had the bank refused to play ball. But it's not altogether clear that they would really have had the appetite to build a new rival business from scratch. Equally some of the second tier management would also have left, but there are not that many places they could go.

Good as they undoubtedly are, their potential employers around Dublin no doubt think their existing teams are their equals at least.

Had Goggin called Davy's bluff he would have been left with a business that was something of a shadow of its former self, but a business that was still valuable and had a franchise that Bank of Ireland could arguably take better advantage of than it does presently. Also worth bearing in mind is that NCB did not disappear in a puff of smoke when a large portion of its senior cadres jumped ship to set up Merrion.

Holding the line might also have headed off something that many now see as an inevitability: the purchase of Davy at some stage by a rival bank, with one of the larger international investment bank's seen as the obvious candidate.

But such a course of action never seemed likely given the amount of water that Goggin has shipped over the problems at Bank of Ireland Asset Management, which were exacerbated by staff departures to rivals. By pocketing €320 million - generally seen as a reasonable price - he has been pragmatic. And it can be argued that such testosterone-fuelled antics really have little place in the boardroom of a major bank.

The upside for Goggin is that he has given his counterpart at AIB, Eugene Sheehy, a similar headache. The Davy deal will bring to a head the issue of equity participation at Goodbody Stockbrokers, which has rumbled on for a number of years, with reports that a 33 per cent stake is being sought by staff. Resisting their entreaties will be all but impossible given the precedent set by Bank of Ireland.