If you had diamond hands and held onto the Anglo Junior Bonds you’d have been paid in full.
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It’s like an auctioneer undervaluing your house, then getting his mate to buy it, and the two of them flip it on again at the real value for a profit.
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Exactly what was done by Indian agents in Canada when natives were forced to sell parcels of land to feed themselves.
Yes, except Davy have less morals
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Is it clear how this was exposed? Did Mr Kearney make a complaint about how he had been treated? Iv read a few articles and it appears that a journalist flagged it, but I haven’t seen anything with Mr Kearney reaction, which I assume he would have been apopleptic
Kearney brought them to the high court in 2016, it was settled out of court. The regulator moved swiftly then to make a decision on it 5 years later
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Driven by money: how the “Davy 16” was assembled and how the Anglo bonds deal was pulled off
Within hours of agreeing to sell his Anglo bonds, Patrick Kearney knew something was wrong. But it was too late. Driven by personal gain, a group of 16 people at Davy had secretly pulled off a financial coup. But who were they, and how did the deal come together?
4th Mar, 2021 - 9 min read
Tom Lyons
Chief Executive
Tom Lyons
This is a story that begins and ends with personal gain. It involves a plan that went to the very top of Davy, Ireland’s most prestigious stockbroking firm and a firm that advises the Irish state in the bond market and 32 companies listed in Dublin and London including four FTSE 100 companies.
However, back when the story started back in November 2014, all was not well among some of the employees in the powerful stockbroker. Some of them desperately needed money; many had watched with horror as their fortunes deteriorated in the wake of Ireland’s financial crash, from which Davy were no strangers.
Year after year, Davy banking analysts had issued buy recommendations after buy recommendations on Ireland’s bubble-time banks. Client money was pumped into highly leveraged deals like the €412 million acquisition of a site in Ringsend in Dublin in 2006.
Its then chief executive Tony Garry had lobbied the state on March 22 2006 to try and stop the Revenue Commissioners dampening down stock market speculation by taxing contracts for difference. Davy was a serious player and for some a route to becoming a millionaire.
From 2008 on, everything got worse. Ireland went bust, and with it vanished the fortunes of some Davy staff. When Davy was owned by the Bank of Ireland some staff had used much of their bonuses to buy more shares in the bank, using a scheme that was popular at the time to encourage employees to do so. The value of these shares was in some cases borrowed against to invest in other boomtime deals. That wealth had vanished.
And then there was the decision by most of the senior staff in Davy to pile into a management buyout at the top of the market in October 2006 in a deal that valued the enterprise at €316 million. Davy had borrowed to fund this deal using money from Anglo Irish Bank, a bank that later went bust. There was carnage.
So, by November 2014, many people in Davy were nursing major losses. Some had significant debts. Some remained very wealthy. This was the same for many people all over Ireland. Other people, and most Davy staff, had to pick themselves up and try to get on with it.
But for 16 people in Davy, a decision was taken by themselves to do something about it. Some were motivated by financial losses on other investments. Others were driven by personal gain. Combined the 16 people decided to do a deal that in another company and another country would result in resignations.
All this lead to a Central Bank investigation, a multi-year probe that saw the stockbroker fined €4.13 million but resulted in no sanctions against the 16.
The Central Bank investigation arose from a transaction involving a group of 16 Davy employees that they undertook in a personal capacity with a Davy client in November 2014.
“Within the Consortium was a group of senior executives (the committee). In permitting the Transaction, Davy prioritised facilitating an opportunity for the consortium to make a personal financial gain over ensuring that it was complying with its regulatory obligations,” according to the statement by the Central Bank.
“The Transaction highlighted a weak internal control framework within Davy in relation to conflicts of interest management and personal account dealing. All of this served to create an elevated risk of investor detriment.”
The Central Bank did not name the 16 people involved in a deal that saw the stockbroker branded as acting “recklessly.”
But who were they?
Anatomy of a deal
The deal, as regards the Davy 16, begins with a senior bond trader called Tony O’Connor (Number 1). O’Connor was a friend of a former Anglo Irish Bank banker called Tom Browne who was working with a former client of the bank called Patrick Kearney to help him deal with company debts.
Kearney was a Northern Irish property investor who owned a company called Kilmona Holdings. He had bought bonds in Anglo with a face value of €27 million in 2009 after Anglo was nationalised and the state had guaranteed its banking system.
By 2014 he wanted to get going again in business and had hired Browne to help him sort out his complicated debts, most of which were owed to various vulture funds who had bought them up from various banks. Browne asked O’Connor to help Kearney.
O’Connor was a senior bond trader in Davy and said he could help. He was an expert working for a blue-chip firm. He asked Kearney to open an account in Davy on October 22, 2014. Kearney believed that he had appointed Davy to advise him to get the best deal in the market for his bonds which were being bought up by a small number of hedge funds.
Some funds were realising that these types of bonds were likely to be very valuable. The liquidation of the former Anglo Irish Bank was going well and could lead to a surplus. The funds were hunting in the market for these bonds which were rising in value, and eventually would be paid off in full.
Kearney was grateful for O’Connor and Browne’s assistance.
A deal was done between the three men to split the proceeds from the sale of the bonds. The fact O’Connor struck a side deal with the developer was itself unorthodox. His personal cut was to be €750,000 under the arrangement he did with Kearney. Browne was to get €900,000 for his advice and assistance.
O’Connor then told Kearney he had found a buyer. The buyer was an entity called the O’Connell Partnership. O’Connor said the O’Connell Partnership was going to pay 20.25 cent in the euro for bonds with a par value of €27 million.
So, the O’Connell Partnership was going to pay €5.4 million in total to take on the bonds. Kearney was not told who was in the O’Connell Partnership.
However, he was told that Davy would be charging him a fee for its professional services. This fee was €207,000. At noon on November 14, 2014 Kearney signed a deal with the O’Connell Partnership.
That afternoon, however, a row broke out. Kearney had spoken to another stockbroker in Dublin called Cantor Fitzgerald who had told him that it could get him a much higher price in the market.
It said it could get him €4.2 million more – at least – in the open market. The other broker valued his Anglo bonds at 32 cents in the euro, far more than Davy – who Kearney believed was acting for him – had been able to get. Kearney asked why hadn’t Davy been able to get him this price.
Kearney tried to back out of the deal, but it was too late. He had signed the deal and was under pressure to deal with his other debts. The money he was owed was transferred to him by Davy. It was November 18, 2014.
Later Kearney would sue Davy, and he received a multimillion confidential settlement in 2016. But that was all ahead in the future.
In its findings, the Central Bank explains what was really happening behind the scenes in Davy.
“In the weeks prior to the transaction the client, through his financial advisor, contacted the Davy employee. He wanted to know the Davy employee’s opinion on the value of the bonds. At that point in time, the client was trying to sell the bonds,” according to the regulator’s report.
“The Davy employee spoke to members of the committee [a group of senior Davy executives] about the opportunity to buy the bonds. The client subsequently opened an execution-only account with Davy and transferred the bonds into this account in anticipation of a possible transaction.
“Initially the Davy employee, the client, and his advisor discussed selling the bonds on the open market subject to achieving a minimum price. The client agreed to a profit share between himself, his advisor, and the Davy employee. The amount of the profit depended on the price achieved for the bonds.”
The Davy committee was interested in buying the bonds. They formed the consortium with other staff members, including O’Connor. A draft legal agreement was provided to the client, whereby the bonds would be transferred to the consortium off-market at an agreed price.
No disclosure was made to the client as to the identity of the consortium members. The transaction proceeded on that basis.
The Central Bank’s investigation found that there was “at the very least, a potential conflict of interest between Davy, the consortium and the client”.
The regulator adds: “Davy kept no written record of what steps were taken to identify whether any conflicts of interest arose with respect to the transaction. The investigation found that the decision that no conflict of interest arose was taken by the committee, each of whom were members of the consortium. They did not minute any discussion in relation to the matter.”
The Central Bank found “no evidence that the members of the Committee had considered the minimum criteria” set out in the regulations.
It added: “The investigation found that the committee decided it was not necessary to consult with Compliance.”
McLaughlin got in on the deal too. It was all now coming together.
The Central Bank said that Davy should have considered the regulations that ruled it. “The Committee should have abstained from participating in decision making on behalf of Davy in respect of a matter in which they had an interest in a personal capacity or where their objectivity was compromised,” it said.
“The Committee should have highlighted the potential conflict of interest to Davy Compliance, and Davy should have documented this process.”
“Davy compliance was sidestepped by the consortium,” the Central Bank said. “An account specifically for the transaction was opened by a member of the committee on Davy’s system for institutional clients, a system that the committee knew or ought to have known was not monitored by Davy compliance.”
Davy, according to the Central Bank, undertook none of the steps it should have. It also found a “lack of candour” from Davy in its initial dealings with the Central Bank, when it failed to admit the true extent of wrongdoing.
Assembling the 16
Behind the Central Bank’s clinical narrative are 16 people. How the 16 men in suits came together was a bit of a scramble, rather than the professional approach Davy prides itself on.
O’Connor (number 1) got on to some colleagues and some superiors and the O’Connell Partnership was rapidly formed.
A committee that included Tony Garry (number 2) the then chief executive of Davy and Brian McKiernan (number 3) emerged.
McKiernan was then head of Davy’s wealth management business. Two days after the deal which led to Davy’s record fine was done, he was named as the chief executive designate of Davy.
“I am not going to discuss this as it is a private matter.”
John Corrigan
McKiernan took up this position in March 2015. He leads the business today, but back in 2014 he was on the committee that cleared the deal, didn’t keep any notes, and decided not to tell its compliance team.
The members of this powerful committee formed the backbone of Davy’s 16.
The head of the bond desk was Barry Nangle (number 4). He remains in this high powered position. And the desk he leads is used by Ireland to advise it when it is raising money internationally. It also works with many of Ireland’s biggest companies including Bank of Ireland.
Nangle was O’Connor’s boss. When he heard about the deal, he decided to participate.
But what about Davy’s deputy chairman Kyran McLaughlin (number 5)? In his pomp, McLaughlin had been described as “Ireland’s most powerful man in the stock market”. Little enough happens in Davy without his knowing about it.
He is one of the richest people in the country. In 1999 he stepped down as chief executive of Davy after documents in relation to his personal financial affairs and a family trust in Liechtenstein were circulated in the media.
“I am in contact with the Revenue to resolve outstanding tax issues, if any, which may have arisen from this arrangement or any other matters,” McLaughlin said in his resignation statement.
McLaughlin knows what it is like to be in the glare of the media spotlight. He knows too from his time on multiple boards the importance of corporate governance and reputation.
McLaughlin got in on the deal too. It was all now coming together.
A financial pile in
It was now pile-in time, and a series of conversations took place inside Davy. Barry Nangle’s brother-in-law is David Smith (number 6). He was head of Davy’s institutional equities team at the time. He got in on the act too.
Ten more people were still needed and fast. Many of those who were selected were friendly with other members involved in the transaction.
Davy has declined to comment on who was among the 16, or who might have known about the transaction and when.
So, I decided to ring some Davy old-timers to see if they could help me.
I rang Anthony Chiles, a 26-year veteran of Davy and its director of fixed income.
Did you hear anything? “I can’t comment,” he replied. “Publish whatever you think is appropriate, Tom. I will leave that up to your judgement.”
I rang Finbarr Quinlan, who retired from Davy in December 2018 as director of fixed income, to see had he heard anything? “I can’t comment,” he said.
Other calls were also made to Davy’s team past and present, to be met by a wall of silence, or unanswered calls.
John Corrigan, the chairman of Davy, told The Currency: “I am not going to discuss this as it is a private matter.”
“I am perfectly aware of my responsibilities,” he said in relation to his role as chairman of Davy, and his responsibility to all of its shareholders and stakeholders.
The former NTMA boss has chaired the board of Davy since April 2015. During his six years, some of the 16 have gracefully retired or gone on to do other things.
Others among the 16 have been promoted, paid bonuses, and allowed to increase their shareholding in Davy.
Now, however, the Central Bank has published its decision. Davy, besides declining to comment on who was among the 16, won’t say where the gains the 16 may have personally made from selling on the Anglo bonds have gone.
It was Davy which was fined, not individuals, so the company picks up the bill.
Corrigan meanwhile leads the review into Davy. So far, nobody in Davy has resigned.
Davy’s slogan, “It’s not just business, it is personal,” sounds rather different now.
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€200k fee to rip your face off. In a way you’d have to almost admire them for that
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In fairness if they hadn’t charged a fee the whole thing would have looked very hooky.
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Reading it yer man ó Connor was getting nearly a million off Kearney as a side slice as well… He was ripping Davy, his employer, off here himself was he not
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There’s something very off about the whole side deal angle. Tom Browne getting a small fortune there for fuck all.
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Davy hired in the AIB CEO in on a small fortune to be Deputy CEO and now acting CEO. You’d have to say it’s good succession planning to anticipate a bunch of execs having to resign.
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Kearney doesn’t sound like brightest button.
Who the fuck would trust any financial organisation to get the best deal for them?
Those bonds had limited liquidity and it was difficult to determine a fair open market price for them. At the time, a young Biff used to ring one of the individuals in the article to get an independent valuation on similar instruments.
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Young Biff couldn’t see the sharks circling in the water it seems
Every one of those fuckers should be in jail.It won’t happen though.
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Young Biff still had the sound of “Don’t stop believing” from Coppers blaring through his head and an aftershock aftertaste. He wasn’t going to be discovering corporate espionage.
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What prompted his call to Cantor Fitz?
Edit: on rereading it appears Cantor made that call.
I would have had some dealings with one of those named and I’d imagine a few of those not named. I’m surprised by it to be honest, even for the Daves they were well offside on this one. I’m not sure how they thought they would get away with it.
I have absolutely no evidence of this but I think there’s more to this deal than meets the eye and that’s why they thought they’d get away with it.
The lad selling them was trying to get out of trouble with the bank at the time. There was loans secured against the bonds.
I’d guess there was a side swizz going on to get him some cash into his paw and screw the banks.
- 200k is a ridiculous fee to be paying Davy for selling a few bonds. They’d have done the same transaction for 10k no bother and been delighted with it. This lad would have had a lot of investments, he’d have known what the charges were.
- The side cut for the bond dealer is ridiculous. Why in the name of fuck would you pay a lad €750k out of your own pocket to bring a deal to a company where they make €200k out of you as well.
- €900k to Browne to set it up.
I mean ffs like. - The lads in Daves are no daws, they’ve no morals either mind. But they’d know well what they were doing was completely illegal. Some of the people named here would be extremely wealthy. If as suggested the €4m between 16 people was the prize then (while obviously you aren’t going to turn it down) I’d suggest some of those players wouldn’t risk their careers for €250k unless they thought they would get away with it.
Again this is all completely made up in my head but I would guess the deal was for Davy’s to underpay for the bonds. Hefty fees to be given out with the proceeds and the bank to be left short handed, while somehow some of that money was to make its way back to the seller.
However I think that he didn’t realise he was being done for €4m rather than the circa €1.5m in fees he thought he was getting done for. The Davy lads did the deal because they thought he was gagged even if he found out. But sure they couldn’t exactly tell the regulator what was after happening either so it proceeded through the appeals process as if it was a straight transaction when it would appear to be nothing of the sort
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