Davy scandal: 3 resign, new probe on the cards
■ Corporate enforcer to examine Central Bank report
THE future of Davy, the country’s blue-chip stockbroker firm, is on the line following the resignation of its chief executive yesterday amid revelations of a conflict of interest bond-buying scandal.
After days of pressure, during which Davy sought to draw a line under the controversy, the firm’s board bowed to the inevitable and accepted the resignation of CEO Brian McKiernan, who is also a board director.
Two other prominent figures at the company, Kyran McLaughlin, deputy chairman, and Barry Nangle, head of bonds, also quit with immediate effect.
The three men were among 16 current and former executives at Davy involved in a transaction that was investigated by the Central Bank of Ireland, which fined the firm €4.1m for breaches of financial market rules.
In the Dáil this week, there are expected to be demands for further investigation into business dealings at Ireland’s oldest stockbroker company.
Last night, Tánaiste Leo Varadkar strongly criticised Davy, saying enormous damage had been done to the stockbroker’s reputation and suggesting other regulatory authorities may wish to investigate the matter.
“It’s only when you read the detail that you really understand what a serious breach of trust this was. It’s as though you were selling your house, the auctioneer pretended to be trying to get the best price for you but was actually the buyer himself,” Mr Varadkar told the Sunday Independent.
“It’s significant that the Central Bank acted and imposed such a large fine, that the CEO and others have resigned and that the board has been refreshed so that nobody who was there at the time is on the board any more. Other authorities may want to look into this as well.
“This will do enormous reputational damage to Davy, but there are 700 staff working for the company and it would be unjust to tar them all with the same brush. To protect these jobs, which is crucial, Davy will need to regain the confidence and trust of its customers.”
Separately, last night the Sunday Independent learned that the Director of Corporate Enforcement is expected to examine a Central Bank report that revealed details of the 2014 transaction, which was related to the now-defunct Anglo Irish Bank.
Political sources also speculated that gardai may eventually have a role in investigating the transaction, which netted the Davy participants over €3m profit.
It was also being noted in business and political circles
that the chief executive of the National Treasury Management Agency is still seeking a response from Davy to the Central Bank report.
“The message is clear that the NTMA is considering its business with Davy,” one wellplaced source said, adding that the NTMA already does business with Goodbody Stockbrokers and several other firms.
AIB last week announced the deal to buy Goodbody from its existing shareholders for a total consideration of €138m.
Pressure intensified on Davy to take action in recent days with sources saying there was “deep hurt and anger” among the 700-plus staff at the 95-year-old firm.
Meanwhile, many of the firm’s private clients, small businesses, corporations and institutional investors will also be seeking answers.
Davy has a prized status as a primary dealer in Irish government bonds. Last night market sources speculated that Davy could become a takeover target. A large amount of the shares are now owned by ex-employees of the company, and recent developments have also left significant gaps in its management team.
With Davy making profits of around €40m a year, the company could be valued at between €300m and €400m.
While there were no golden handshakes as part of the resignation agreement, two of those leaving hold significant shares in the company.
Mr McKiernan (58) is the largest shareholder of the three, with around 13pc of the company. His shares could be worth over €50m.
There does not appear to be have been any formal agreement in relation to the sale of his shares, but he is unlikely to hold them in the long term. The Belvedere-educated Mr McKiernan was seen as being at the prime of his career, having taken over the top job in 2015.
Mr McLaughlin (76) owns 4pc of the company, but is known to be one of the richest men in the country. Mr Nangle’s shareholding is unknown.
While Mr McKiernan is the most senior Davy executive to resign, the most symbolic departure is that of Mr McLaughlin, a former Davy CEO who has been involved in the company for around 50 years. Financial services insiders say that the whole Davy culture stems from Mr McLaughlin, who would have played a central role in many of the biggest Irish corporate deals in the 1990s and 2000s.
He has been one of the most significant figures in Irish business for much of his career. For example, he would have been a close advisor of Michael Smurfit on major international deals that would have helped put Irish business onto the global stage. He resigned as chief executive of Davy in 1999 when Revenue investigated a trust he had in Liechtenstein, rejoining the board some years later. Several of the 16 staff at the centre of the bond transaction have already left the company, including Tony Garry and David Smith. The small number of the 16 would have been at a more junior level.
While there has been no indication that the Central Bank will further pursue individuals involved in the bond transaction, it cannot be ruled out.
In yesterday’s statement the company said it “deeply regrets the shortcomings that emerged from the Central Bank of Ireland’s investigation and apologises unreservedly and unequivocally that these failures occurred”.
In a separate statement Mr McKiernan said: “I regret my role in a transaction in 2014 and I am very sorry for the hurt that it has caused to the reputation of Davy and its people.”