Davy sale will need ‘absolute clarity’ on other potential cases, warns Donohoe

Minister also says it is important that stockbroker finds ‘stable owner’

Davy formally put itself up for sale on Thursday evening. Photograph: Niall Carson/PA Wire

Davy formally put itself up for sale on Thursday evening. Photograph: Niall Carson/PA Wire

 

Minister for Finance Paschal Donohoe said on Friday that a 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 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.

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.

Investment

The embattled firm has hired international investment bank Rothschild to find a buyer. It is also close to appointing an independent third party to review issues arising from the investigation and search for other potential cases of wrongdoing.

“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 by failing to identify whether a conflict of interest existed as 16 of its employees, including top executives, bought junior bonds in Anglo Irish Bank from a client in November 2014 without disclosing that they were the buyers. 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.

Sale

The firm, where former National Treasury Management Agency chief executive John Corrigan is chairman and former AIB chief executive Bernard Byrne stepped in as interim chief executive last weekend, decided to press ahead with the 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.

The Irish Times reported on Friday that the Irish Stock Exchange found in 2009 that Davy had breached market rules in a 2005 multimillion-euro deal with credit unions by acting as “principal in the purchase and sale” of a bond.

Investments

A statement at the time from the Irish Stock Exchange, which was then Davy’s regulator, cited breaches linked to the requirement for “reasonable steps to ensure the bonds were in full compliance” with investment rules, which Davy also disputes, but did not say the broker was principal on both sides of the deal.

Davy was also a shareholder in the exchange at the time and had representation on its board. The Central Bank subsequently took over direct regulation of securities firms.

Asked about the report, the Minister said that “the incident” happened at a time when the Central Bank had fewer powers than it does now. He said the independent review will be looking at transactions that happened in the business.

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