Bank of Ireland ‘may look’ at Davy, says chief executive

Francesca McDonagh argues that restrictions on variable pay are ‘anti-competitive’

Francesca McDonagh, chief executive of Bank of Ireland. Photograph: Laura Hutton

Francesca McDonagh, chief executive of Bank of Ireland. Photograph: Laura Hutton

 

Bank of Ireland chief executive Francesca McDonagh confirmed that the group “may look” at Davy. The stockbroking firm has been put up for sale two weeks ago in the wake of a bond-trade scandal.

Ms McDonagh said that if Bank of Ireland acquired a business that allowed for bonuses, or variable pay, for employees, the bank would seek permission from Minister for Finance Paschal Donohoe to allow for this to continue.

The chief executive noted that a precedent was set in this regard with AIB’s planned takeover of Goodbody Stockbrokers, announced earlier this month, which will resolve in the stockbroking firm retaining variable pay for its staff. She said that the broader restriction of variable pay among bailed-out banks was “anti-competitive” as it made it difficult to compete with other international banks in the Irish market and fintechs for “talent”.

The Davy sale “is at a very, very early stage as far as my understanding”, Ms McDonagh said in a virtual appearance before the Oireachtas finance committee on Tuesday. “As the process starts, we may look at this opportunity as we look at a variety of opportunities in the market.”

The Irish Times reported on March 10th that Bank of Ireland had made an exploratory approach to Davy about the possibility of doing a deal, as the stockbroking and wealth management firm was in the middle of a crisis amid the fallout of a Central Bank fine and severe reprimand.

It related to a case where 16 Davy staff, including top executives, secretly bought at a knockdown price an Anglo Irish Bank bond that the firm was given the job of selling for Northern Ireland property developer Patrick Kearney. He was not told by Davy that it had sold the bond on to a group of its own staff, who wanted to make a profit. Davy’s own compliance team was also kept in the dark.

Potential buyers

Davy’s board hired investment bank Rothschild on March 11th to find a buyer for the beleaguered business.

Other interested parties are expected to include wealth management group Julius Baer; Cantor Fitzgerald, which acquired Irish stockbroker Dolmen in 2012; the Irish unit of UK wealth manager Brewin Dolphin; and London-based investment house Permira.

Bank of Ireland chairman Patrick Kennedy argued in Bank of Ireland’s annual report, published earlier this month, that the lender should be permitted to “develop a more normalised remuneration approach”, having repaid its €4.8 billion taxpayer bailout in 2013.

Bonuses are subject to a prohibitive 89 per cent take among bailed-out banks.

“I appreciate that, given where the economy is now, to talk about Irish bankers’ bonuses is highly contentious,” said Ms McDonagh.“But if I just step back and think about the future of the recovery of this economy, having Irish-only banks being restricted in a way that other banks in Ireland are not is anti-competitive and it actually makes it very difficult to retain and attract key talent, which we need for a profitable and sustainable Irish banking sector.”

Meanwhile, Ms McDonagh defended the bank’s recent decision to reduce the number of physical branches it had by 88 from 257 to 169 from September onwards.

“The change reflects the reality that we have reached an inescapable tipping point in customer preference between online and offline banking,” she said.