Davy interim CEO seeks to ease client concerns after bond scandal
Bernard Byrne offers ‘unreserved and unequivocal’ apology
Davy formally put itself up for sale on Thursday evening, as its board seeks to rebuild trust in the business. Photograph: PA Wire
Davy’s interim chief executive, Bernard Byrne, wrote to clients on Friday evening offering his “unreserved and unequivocal apology and regret” for the bond scandal that has convulsed the business, resulting in top executive exits and the firm putting itself up for sale.
“The failures at Davy have impacted our reputation and your trust in us. As the new leader of Davy I will do everything I can to rebuild that trust,” said Mr Byrne, a former CEO of AIB who joined Davy two years ago as deputy chief executive. “We remain fully committed to and focussed on serving your needs.”
Davy formally put itself up for sale on Thursday evening, as its board seeks to rebuild trust in the business and address concerns about former senior executives involved in a trade that took place in 2014 remaining as major shareholders. The Central Bank fined Davy €4.1 million last week for regulatory breaches in relation to the case, after years of investigation.
The National Treasury Management Agency (NTMA) subsequently dropped Davy as a primary dealer in Government bonds, while some investment firms pulled back on trading with the business and its corporate clients demanded assurances as the crisis unfolded over the past 11 days.
Questions and answers
In a series of questions and answers attached to the communication to clients, Davy highlighted the controls and processes the firm has introduced since the 2014 trade, where a group of 16 employees, including senior staff, bought Anglo Irish Bank bonds from a client without the knowledge of the client or Davy’s own compliance function.
Davy said that the stockbroking and wealth management firm “continues to be in a strong financial position with approximate regulatory capital requirements of €65 million and regulatory resources of €134 million and holds regulatory capital of twice its minimum regulatory requirements”.
It said the recent events have had no impact on the regulatory capital surplus. Answering the question of whether Davy can be trusted again, the firm said: “The board takes the responsibility to customers of Davy very seriously. Davy is now a safer and more secure place for clients than it has ever been in its almost 100-year history.”
Earlier on Friday, Minister for Finance Paschal Donohoe said the sale of Davy will require “absolute clarity” on whether a bond-deal scandal that has rocked the 95-year-old company is an isolated incident or is more widespread.
The Minister also said, during an interview with broadcaster Newstalk, that it is important that Davy finds a “stable owner” so that the firm, which employs 700 people, can continue to fulfil its “important” role in managing investors’ savings and helping companies to raise money to grow and create jobs.
“One of the issues that will need to be resolved, if the sale of Davy does happen, is absolute clarity regarding whether the activity that is at the heart of this issue is more prevalent than the single incident the Central Bank indicated a week ago,” Mr Donohoe said in the interview. He declined to say whether he thought the Central Bank will now take action against individuals that were involved in the controversial trade.
Davy has been in crisis since the Central Bank revealed last week that the firm breached market rules in relation to the 2014 Anglo Irish bond trade. The regulator also found that Davy kept its own compliance officials in the dark on the deal.
Five former senior executives and directors at the business, including former chief executive Brian McKiernan, former deputy chairman Kyran McLaughlin, former head of bonds Barry Nangle as well as one-time chief executive Tony Garry and former head of head of institutional equities David Smith, are estimated to own about a third of the business between them. The bond deal was brought to the firm by one of its then bond specialists Tony O’Connor.
The firm, where former National Treasury Management Agency chief executive John Corrigan is chairman, decided to press ahead with its sale with the consent of major shareholders. A deal would need approval from 75 per cent of shareholders.
Bank of Ireland has already made an exploratory approach to Davy about the possibility of doing a deal, according to sources. A sale process is likely to flush out further interest and take months. Swiss wealth management group Julius Baer has been reported as being interested in looking at a deal, while industry sources expect Cantor Fitzgerald, which acquired Irish stockbroker Dolmen in 2012, the Irish unit of UK wealth manager Brewin Dolphin, and London-based investment house Permira to express an interest.