Bank of Ireland approaches crisis-stricken Davy

No evidence of suspected criminal activity in broker inquiry, according to Central Bank

Bank of Ireland has made an exploratory approach to Davy about the possibility of doing a deal, should the crisis-stricken stockbroking firm seek to find a buyer as it grapples with the fallout of a Central Bank fine and rebuke over market-rules breaches.

Sources say that approach was at a high level and has been viewed as laying down an early marker at a time when Davy's interim chief executive, Bernard Byrne, who was appointed on Saturday following a number of senior exits, tries to stabilise the business.

Spokesmen for Bank of Ireland and Davy, which was estimated to be valued at about €400 million before the crisis, declined to comment.

Meanwhile, Central Bank director general of financial conduct Derville Rowland told the Oireachtas finance committee on Tuesday that the regulator's long investigation into a 2014 bond deal at the heart of the Davy scandal "caused a day of reckoning" for the State's largest stockbroking firm in respect of its governance, conduct and culture.

‘Careful investigation’

However, she said Central Bank officials found no signs of suspected criminal activity during their investigation that would have obliged them, by law, to make reports to An Garda Síochána or the Office of the Director of Corporate Enforcement.

“I can confirm that in the course of this very meticulous and careful investigation we did not form suspicion to support reports to other agencies,” said Ms Roland. But she added that she will still engage with the other authorities now that the Central Bank investigation is complete.

The regulator’s investigation found that 16 staff, including top executives, sought to make a profit by taking the other side of a bond deal involving a client in 2014 – without telling him or the firm’s compliance team.

The move by Bank of Ireland is seen as an opportunistic approach as Davy seeks to contain the biggest crisis in its 95-year history, having closed its bond desk on Monday after the National Treasury Management Agency pulled its authorisation as a primary dealer in Government bonds. A number of Iseq-listed companies that retain Davy as their corporate broker are also monitoring the situation.

Industry observers say that there may be other interested parties in Davy, but Bank of Ireland would be seen as the most logical buyer, with its large balance sheet and significant Irish business. Davy’s wealth management operation is likely to be of particular interest, but the bank would also be interested in its corporate business, they said.

Bank of Ireland, in which the State has a 14 per cent stake, previously owned Davy but the broker's management bought it out in 2006 in a deal that valued the business at about €350 million. Rival AIB confirmed last week that it had agreed to buy back Goodbody Stockbrokers, a business it was forced to offload a decade ago as part of a restructuring plan linked to its taxpayer bailout.

Potential buyer

The AIB deal with Goodbody underlines the attraction of the free-earning ability of broking businesses to the banks in the current low-interest rate environment and muted loan demand, which has been compounded by the Covid-19 pandemic.

Any potential buyer of Davy would be conscious of the need for extensive due diligence to make sure that there are no other problems in the firm. But a transaction would likely win support from the Government given concerns at political level about the fact that 16 former Davy staff at the centre of the 2014 bond deal continue to own a major stake in the business that is said to amount to at least 33 per cent.

They include former chief executive Brian McKiernan, the largest individual shareholder at about 13 per cent, former deputy chairman Kyran McLaughlin and former head of bonds Barry Nangle. All three resigned on Saturday. One-time chief executive Tony Garry and former head of institutional equities David Smith, who were also key players among the 16, also retain large holdings.

Minister of State at the Department of Finance Seán Fleming said on Sunday that Davy needed to "very promptly" address concerns around the fact that former senior executives involved in a controversial bond trade remain major shareholders in the group.

Ms Roland told the Oireachtas finance committee that the regulator was “highly focused on this issue”.