Davy’s fund management and servicing unit will be sold separately to Bank of Ireland’s planned purchase of the firm’s capital markets and wealth management business, which is on track to be announced next week, The Irish Times has established.
While the sale of Davy's entire assets, including its excess cash reserves, is set to generate more than €500 million, Davy Group Fund Management (DGFM) will account for more than €70 million of the figure, according to sources.
Davy, led by interim chief executive Bernard Byrne after a senior management overhaul in the wake of a bond-deal scandal that rocked the group in March, has also moved in recent months to retain staff at a critical time by giving early assurances around bonuses, with a large portion set to be paid in December, months ahead of the normal schedule.
Sources said the Bank of Ireland deal could be confirmed as soon as the middle of next week. Spokesmen for Davy and Bank of Ireland declined to comment.
It is believed that an announcement on the DGFM unit, including a boutique active asset management operation and a business that provides management company (ManCo) functions for EU-regulated funds on behalf of major global asset managers, will be made at a later stage.
While the two deals for Davy will top €500 million, this also includes the firm’s excess cash pile, estimated to stand at about €80 million. Davy has about 700 employees.
Bank of Ireland will seek permission from Minister for Finance Paschal Donohoe to allow Davy to retain its variable-pay structure for staff, even as bonuses continue to be banned across bailed-out Irish banks more than a decade after the financial crisis.
Bank of Ireland chief executive Francesca McDonagh noted at an Oireachtas finance committee meeting in March that a precedent was set in this regard with AIB's planned takeover of Goodbody Stockbrokers. The Goodbody deal, which remains subject to Central Bank approval, will also see 30 AIB corporate finance and wealth management staff transfer to the stockbroking firm – thus making them eligible for bonus payments – by the end of next year.
Davy put itself up for sale in March in an effort to rebuild trust in the business and address concerns about former executives involved in a controversial bond deal in 2014 remaining as major shareholders. Bank of Ireland made a bid approach even before the for-sale sign was hoisted and has been regarded as the most likely acquirer.
Brian McKiernan, Davy’s largest shareholder and former chief executive, who was part of the so-called Davy 16 involved in the 2014 bond deal that was the subject of a €4.1 million Central Bank of Ireland fine in March, stands to receive about €65 million for his 13 per cent stake under a deal worth €500 million.
Four other former senior figures who were key players in the trade, one-time chief executive Tony Garry, former deputy chairman Kyran McLaughlin, erstwhile head of institutional equities David Smith and ex-head of bonds Barry Nangle, are understood to own a further 20 per cent combined.
However, the net proceeds from a sale will depend on the level of debt held by Davy companies as well as individuals’ personal borrowings.
Bank of Ireland previously owned Davy but the broker’s management bought it out in 2006 in a debt-laden deal that valued the business at about €350 million.