Davy stockbrokers is somewhat of an Irish broking institution. It might not be Irish for much longer if the sales process the broker has just initiated takes its course, as several foreign financial groups are known to be interested in the firm.
Davy has been taking fire from the Irish regulator and politicians in Dublin over a major conflicts of interest scandal that has shocked the conservative Irish financial services community, which prides itself on the solid governance and prudence of its firms.
Breach of market rules over bond sale
The Irish regulator, the Central Bank of Ireland, revealed last week that Davy had breached market rules when it failed to identify a conflict of interest around a transaction in bonds it acquired from a client in 2014.
The junior bonds were issued by Anglo Irish Bank and were sold by their owner, a wealthy investor in Northern Ireland, to Davy at a discount. A total of 16 employees are known to have personally benefited from selling the bonds on at a higher price. What is most shocking is that thoughout the process the broker’s compliance team was kept in the dark.
The Central Bank of Ireland was not amused and has censured Davy to the tune of €4.1m. In a way it is somewhat unfair as the offence took place seven years ago and there has been a major management shake up at Davy stockbrokers since then, but the scandal has also energised Irish politicians who have been very critical of the brokerage.
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There are thought to be a number of big buyers lined up for Davy, among them Julkis Baer, Cantor Fitzgerald, private equity firm Permira and UK wealth manager Brewin Dolphin. Cantor Fitzgerald is considered one of the favourites, having acquired Irish broker Dolmen in 2012.
Board level resignations
The fall out from the scandal has continued in Dublin over the past week. Last weekend Davy CEO Brian McKiernan resigned his position. Non-executive director Kyran McLaughlin also resigned, as did Barry Nangle, head of bonds at Davy. Davy confirmed that none of the 16 individuals who were in the consortium that profited from the Anglo Irish bond sale were still working for the company.
Davy has said it is conducting an independent review into how it dropped the ball here, using a third party, as yet undisclosed. But as several of those departing from the company are key shareholders, there is an expectation that we are going to see a major shake up of the shareholding structure. The Bank of Ireland, which has the Irish government as a minority shareholder, is also believed to have made an approach about an acquistion.
Traditional and well regarded Irish brokerage
Davy has long been a part of the furniture in the Irish wealth management and broking world. Established in the 1920s, it is regarded as a major pillar of the local financial services community. While it was valued at around €400m before the crisis broke, it is likely that the current state of affairs sets Davy up for being bought out.
Our money is on the Bank of Ireland bid, as finance minister Paschal Donohoe has already said he would prefer to see a solution that continues to see the broker playing an important role in supporting the Irish corporate sector.