Former executives at Davy who were at the heart of a bond-trading scandal that has rattled the stockbroking firm – and are still shareholders in it – are close to agreeing to allowing the remaining board members to put it up for sale, according to sources.
It is expected that Davy, 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, will confirm before the weekend that the business is being put on the market.
The firm is poised to hire an overseas investment bank to manage the process, which could take months, the sources said.
The development comes after The Irish Times reported on Thursday morning that Bank of Ireland has made an exploratory approach to Davy about the possibility of doing a deal, should the firm seek to find a buyer as it grapples with the fallout of a Central Bank fine and rebuke over market rules breaches.
While there has been speculation about the dynamics at play between the former executives and the board, a source said that there was “no gap” between both sides that the future ownership of the business needs to be addressed by way of a sale. A spokesman for Davy declined to comment.
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.
Their continued ownership of a large part of the business has become a contentious issue politically and has triggered a lot of disquiet among Davy’s 700-strong workforce.
All five were key players among a group of 16 former Davy employees that took part in a controversial bond deal in 2014 that resulted in a €4.1 million Central Bank fine and severe reprimand last week following a multi-year investigation.
The firm was found to have breached market rules by failing to identify whether a conflict of interest existed as the 16 bought junior bonds in Anglo Irish Bank from a client without disclosing that they were the buyers. The regulator also found that Davy had kept its own compliance officials in the dark on the deal.
Mr McKiernan, the main shareholder with an estimated 13 per cent stake, Mr McLaughlin and Mr Nangle resigned over the weekend as the crisis escalated. Mr Garry and Mr Smith left the firm between 2015 and 2016.
Bank of Ireland
A deal with Bank of Ireland, which previously owned 90 per cent of Davy before selling the firm to management and staff in 2006 in a deal that valued the business at €350 million, is seen as the most likely avenue for keeping the stockbroking, corporate finance and wealth-management businesses intact.
A shareholder agreement from the time of the management buyout states that 75 per cent of shareholders must agree to a sale deal. Adding to the complexity of the situation, about 30 per cent of the stock is said to be in the hands of other former staff who left the business over the past decade and a half.
The remainder is held by a group number of employees within the firm. A possible outcome could involve the former employees selling into a deal, with current staff retaining an equity stake, according to sources.
Meanwhile, Davy is poised to confirm the appointment of an independent third party to review the Central Bank findings and ascertain if there are other issues in the firm.
Aside from carrying out extensive due diligence on Davy, a potential buyer would also be likely to protect itself from potential issues emerging in future by holding back a certain amount of the consideration for a number of years.
It could also insist on the sellers signing up to a letter highlighting potential liabilities that, if not disclosed, would reduce final payments on the deal.
Davy was estimated to be worth about €400 million before the crisis struck, according to sources. There will be a natural tension between former employees among the shareholders who will want the best price achievable and many of the remaining staff that hold shares, who will be looking for a buyer that will keep the business together.