Davy crisis: Firm shuts bond desk, says no one linked to controversial deal is still at firm

NTMA earlier pulled Davy’s ability to act as primary dealer of Government bonds

Davy was the only Irish-owned firm among the 15 primary dealers of Government bonds recognised by the NTMA. Photograph: Getty

Davy was the only Irish-owned firm among the 15 primary dealers of Government bonds recognised by the NTMA. Photograph: Getty

 

Davy said on Monday evening that it had closed its bond desk, resulting in four redundancies, as it raced to contain a growing crisis triggered by a €4.1 million Central Bank fine and rebuke over breaches of market rules in relation to a 2014 bond deal.

The brokerage said that, following the move, none of the 16 individuals involved in the controversial trade was working for the firm.

The announcement came hours after the National Treasury Management Agency (NTMA) withdrew Davy’s ability to act as a primary dealer of Irish Government bonds, in an unprecedented move, as the State’s largest stockbrokerage deals with the fallout from the scandal.

Those made redundant by the decision to quit bond trading include Anthony Childs, who was a director of bonds at Davy, Barry Murphy, Eamonn Reilly and Stephen Lyons. They were all involved in the 2014 trade, according to sources.

However, Mr Murphy, Mr Reilly and Mr Lyons were juniors on the bond desk at the time, a number of levels below some of the main participants in the trade that saw a total of 16 Davy employees seek to profit by taking the other side of a bond deal to a client in 2014 without the knowledge of the client or the firm’s own compliance team.

The Irish Times has also established that Finbarr Quinlan, a former director of bonds at Davy, was also a member of the group of 16. None of the five men responded to efforts to secure comment.

None of the five men were one a committee of senior executives among the 16, which permitted the bond deal, failed to identify whether any conflicts of interest arose, and sidestepped internal compliance officials, according to sources.

Davy chief executive Brian McKiernan, deputy chairman Kyran McLaughlin and head of bonds Barry Nangle resigned over the weekend as Davy struggled to contain the biggest crisis in its 95-year history.

The Irish Times reported last week that all three, as well as former chief executive Tony Garry and one-time head of institutional equities David Smith were part of the group involved in the bond deal.

Independent review

Davy named Bernard Byrne, a former AIB chief executive, as interim chief executive on Saturday. Mr Byrne, who joined the brokerage two years ago, promised members of the firm’s 700 workforce in a virtual call on Monday morning that the firm would take action to stem the crisis. Davy is preparing to hire an outside firm to carry out an independent review of matters arising from the Central Bank’s findings.

On Monday afternoon, the board of the NTMA said it had “reached its decision based on its assessment of the very serious findings relating to the firm that were made by the Central Bank of Ireland last week and following engagement with investors in Irish Government debt over recent days”.

Davy was the only Irish-owned firm among the 15 primary dealers of Government bonds recognised by the NTMA, and would have been required to find buyers for State debt as the NTMA seeks to raise as much as €1.5 billion in a bond auction on Thursday.

Primary dealers typically break even at best handling regular auctions, but stand to make considerable amounts in fees in managing larger bond sales, or what are known as syndicated bond deals.

Davy would have made about €4.5 million in fees from being one of six managers of such deals in three major bond sales since the start of 2020, through which the NTMA raised almost €16 billion, driven by the Government’s need for funds to deal with the spiralling costs of the Covid-19 pandemic.

“A primary concern for the NTMA is to maintain the reputation of Ireland as a sovereign issuer in the bond market and the orderly functioning of the market for Irish Government debt,” the agency said.

“In this context, the NTMA believes that the behaviour described in the Central Bank findings falls substantially short of the standards expected from market counterparties, peers and colleagues in the bond market and is potentially damaging to Ireland’s reputation as a sovereign issuer.”

Minister for Finance Paschal Donohoe said the NTMA had made an “appropriate decision given the recent very serious findings of the Central Bank”.