Davy group of 16 face possibility of personal sanction from Central Bank

Stockbroker faces scramble to hold on to clients as top executives resign

The Davy Group at Davy House on Dawson Street, Dublin. Photograph: Gareth Chaney/Collins

The Davy Group at Davy House on Dawson Street, Dublin. Photograph: Gareth Chaney/Collins

 

Members of the Davy group of 16 at the heart of the scandal that has landed the stockbroker with a record fine face the possibility of personal sanction from the Central Bank.

The bank, which regulates the sector, can turn its attention to the behaviour of individuals only after it has first found against the company under current Irish law. The recent decision to fine the business €4.1 million over a rogue bond trade means it can now focus on the behaviour of individuals involved, including senior executives, Minister for Public Enterprise and Reform Michael McGrath said.

The regulator has a range of sanctions available, including fines and barring people from working in a regulated firm.

The company is also under pressure to address concerns over its shareholder structure, as the group of 16 individuals involved in the 2014 trade at the centre of the scandal are estimated to own at least a third of a business that is valued at about €400 million.

Davy’s new interim chief executive, Bernard Byrne, faces a battle to convince clients and staff that the State’s biggest stockbroker can rebuild trust after the Central Bank finding that has triggered the biggest crisis in the firm’s 95-year history and senior resignations over the weekend.

Reprimand

The regulator revealed last Tuesday it had fined Davy €4.1 million and reprimanded the firm after finding that 16 staff, including top executives, had 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.

Davy said on Saturday that chief executive Brian McKiernan, deputy chairman Kyran McLaughlin and head of bonds Barry Nangle had resigned with immediate effect. The executives had been named in The Irish Times as members of the so-called O’Connell Partnership alongside former chief executive Tony Garry and one-time head of institutional equities David Smith.

The board of the company – led by chairman John Corrigan, who joined the firm after the deal – committed on Sunday to proceeding with an independent review of the regulator’s findings.

The board of the company – led by chairman John Corrigan, who joined the firm after the deal – committed on Sunday to proceeding with an independent review of the regulator’s findings. File photograph: Google Street View
The board of the company – led by chairman John Corrigan, who joined the firm after the deal – committed on Sunday to proceeding with an independent review of the regulator’s findings. File photograph: Google Street View

“Davy recognises the seriousness of matters raised by the [Central Bank] investigation and the requirement for near-term answers and actions, balanced by the requirement for due process in respect of the range of stakeholders involved,” a spokesman for the firm said.

Sources said some large investment companies that trade through Davy and charities that deal with its private clients division had warned that they would pull business if it did not address the situation to their satisfaction.

Accountability

Mr Byrne, the former AIB chief executive who joined Davy two years ago as deputy chief executive, is expected to address Davy’s 700-strong staff on Monday morning in an effort to ease their concerns.

The board on Friday heard accounts of staff anger over the handling of the investigation and senior accountability. Mr Byrne and other senior executives also face a battle convincing clients that Davy can draw a line under the debacle.

“The handling of the issue [last] week left a lot to be desired, by way of statements that came out from the firm and the way it took a number of days for any level of accountability to be brought to bear by the firm itself,” Mr McGrath told RTÉ One’s The Week in Politics programme on Sunday. “It’s an extremely serious issue.”

Mr McGrath said that the National Treasury Management Agency (NTMA), which recognises Davy as the only Irish-owned primary dealer of Government bonds and which uses the firm to sell new debt, was awaiting a response from Davy to the NTMA’s concerns about the company’s behaviour.

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