by As Davy sought during the financial crisis to pay down debt following a top-of-the-market 316 million management buyout of the business in 2006, a small group within the firm that had been on the margins for years would come into its own.
Staff on the Davy bond, or fixed-income, desk may have been way behind stars in the firms high-flying private clients and institutional equities when it came to doling out shares to staff in the wake of the deal, as the days of making real money in trading government debt had long petered out after the launch of the euro in 1999.
But that was before the downturn came, said a former Davy employee. And while the equities side of the business had a few very busy years with high volumes of trading between 2007 and 2008, the focus of investors inevitably turned to the next big play, which was bonds.
The fixed-income desk, led at the time by Barry Nangle, would go from making about 5 million in revenues a year before the financial crash to generating, at one stage, upwards of 25 million a year between 2009 and 2012, according to sources, as investors furiously traded Irish government and all classes of bank bonds. The call at the centre of every trade was whether the debt would come good or be reneged upon, even as the State was subject for most of the time of an international bailout.
The guys on the bond desk liked to say that they saved the firm during those years, said the former employee.
The past 10 days have seen Davy convulsed, however, by a 2014 bond transaction brought to the firm by one of its bond specialists at the time, Tony OConnor. The transaction has has come back to haunt the firm.
Following years of investigation, the Central Bank of Ireland sent shockwaves through Dublins financial circle, and beyond, at 1pm on March 2nd as it revealed it had fined Davy 4.1 million and reprimanded it for breaching market rules by failing to identify whether a conflict of interest existed as 16 staff bought junior bonds in Anglo Irish Bank, in liquidation at the time, from a client, Northern Ireland developer Patrick Kearney, 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.
The ensuing crisis has resulted in the exit of all of the remaining 16 employees in the firm who took part in the ill-conceived trade, including former chief executive Brian McKiernan, former deputy chairman Kyran McLaughlin, and Nangle. It also saw Davy being dropped on Monday as a primary dealer of government debt, the immediate closure of the bond desk, and, in recent days, the firm taking steps to put itself up for sale.
While the Central Bank didnt identify the bond or client in question, the background was immediately clear, as it had been the subject of a lawsuit that had been settled by Davy in early 2016 for what sources say amounted to between 2 million and 3 million. The Davy 16 would go on to make a substantial profit on the bonds, which they bought for 5.58 million, or 20.25 in the euro.
While the Central Bank said that the consortium of 16 sold a large tranche of the bonds three weeks later, sources said that some continued to hold the notes for years.
The bonds would ultimately come good as proceeds from the liquidation of Anglo, under the umbrella of Irish Bank Resolution Corporation (IBRC), beat expectations. This resulted in their par value of 27 million being handed over to holders of the bonds in late 2019.
The Irish Times has established that the executive committee referred to by the Central Bank as permitting the bond deal, failing to identify whether conflicts of interest arose, and sidestepping internal compliance, comprised OConnor, McKiernan, McLaughlin, Nangle, former head of institutional equities David Smith and the companys then chief executive Tony Garry.
Excluding OConnor, the other five were known internally as the G5 group of powerful executives that mastered all they surveyed.
The shock move by the remaining members of the board on Monday to close the bond desk, hours after the NTMAs unprecedented move to drop the only Irish-owned primary dealer of government bonds, resulted in the redundancy of four other members of the wider consortium: Anthony Childs, who had been a director of bonds at Davy, Barry Murphy, Eamonn Reilly and Stephen Lyons. Another member of the 16, former director of bonds Finbarr Quinlan, had left the business a few years ago. None of these men were part of the committee.
Theres a huge amount of sympathy for the junior guys who were encouraged to get in on the trade, a Davy source said. They would have drawn huge comfort that the whole thing was legit from the fact that the top executives were all over it. Everyone is just shell-shocked.
Anger among most of the 700 staff at Davy, where chairman John Corrigan and interim chief executive Bernard Byrne are left to clean up the mess, has also spilled over to former employees who have found themselves having to tell their associates, clients and employers that they were not part of the Davy 16.
