Davys are all kinds of wrong.
For the posters who don’t know the background
Look for the key words of rugby and religion
He went to Belvo not Gonzaga so I wouldn’t know.
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‘After a year gaining experience in London and Wall Street, Davy came home with a broader perspective on stockbroking than was prevalent at the time in Dublin, then exclusively focussed on equity trading.’
If he’d stayed longer he could have called it a holiday.
The farmers will be dumping silage all over the reception area of their offices on Stephens Green if they ripped them off.
This is a complicated one. More likely to dump it at the Kerry group plc offices
On Tuesday, Central Bank director general of financial conduct Derville Rowland told the Oireachtas finance committee that the regulator’s long investigation into a 2014 bond deal at the heart of the Davy scandal “caused a day of reckoning” for the State’s largest stockbroking firm in respect of its governance, conduct and culture.
She said Central Bank officials found no signs of suspected criminal activity during their investigation that would have obliged them, by law, to make reports to An Garda Síochána or the Office of the Director of Corporate Enforcement.
Nothing that even looked like criminal activity?
That’s actually unfair to Derville
Davys have announced they are to be sold
They are buying themselves for a discount
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Good article on the currency tonight giving lot more detail on the actual transaction of the sale of the bonds originaly
Any chance of a copy + paste?
Or bullet points?
It has been a dramatic and troubling ten days for Davy. Fined by the Central Bank, condemned by politicians, sacked by the NTMA, the stockbroker has seen its reputation significantly tarnished and its financial value slashed. Its chief executive and deputy chair, two of the most influential figures in Irish business, have resigned and the broker is now scramble to scramble to find a finance house willing to buy it.
But behind the controversy is a transaction. And it is this transaction, one that triggered a six-year investigation by the Central Bank, that has devasted the stockbroker.
We know the basics of the deal – how 16 people including high-ranking executives at the firm sought to profit personally at the expense of a client, the property developer Patrick Kearney. We know he went to the firm looking to sell bonds he held in the former Anglo Irish Bank. And we know that Davy took those bonds, and secretly sold them to the Davy 16, a deal where a gilded few hoped to make millions.
But how did Davy spin the deal to Kearney? Today, we are publishing a series of emails and correspondence that give the inside story of how Davy convinced a self-made developer into selling bonds at well below their market value.
We have not edited the emails. We are leaving in the typos and the grammatical errors. They shed an extraordinary light on the shocking scandal and the culture within some corners of what was Ireland’s premier broker and wealth manager.
Tony O’Connor signed off his email on a hopeful note: “Let’s hope this works – usually if it is too good to be true it is bollix maybe this time its different.”
O’Connor, a senior bond trader at Davy, was emailing his client Patrick Kearney. The email was sent on October 28, 2014, at 9.45 in the morning. It was copied to his friend Tom Browne, a former banker with Anglo Irish Bank. O’Connor used his Gmail account, and not the Davy account he would use in other interactions with the developer.
Kearney hired O’Connor to sell an Anglo bond with a face value of €27 million for him. The two men had met for the first time in the offices of Browne’s advisory firm LeBruin on October 1, 2014. O’Connor had worked with Davy for 19 years as a bonds trader. He was very experienced.
At that meeting, O’Connor listened to Kearney’s story. The Belfast developer explained how he was in the middle of a large and complex refinancing after his business loans were sold to vulture funds by his banks. Kearney wanted O’Connor to help him with a particular issue that required bond trading experience. He had never met O’Connor before but he trusted him as he was a long-standing friend of his advisor Browne (it is worth noting at this point that there is no suggestion that Browne knew what would happen later on in relation to the deal).
Kearney filled O’Connor in. His loans had been sold by his former banks at a discount to various funds, and he was now trying to get back control of his business by striking deals. Kearney employed more than 250 people. There was a lot at stake.
Cutting Carval a deal
In the middle of refinancing the debts of his core business, he received a call from James Ferris of Arrow Capital, a real estate adviser. Ferris had been asked by a subsidiary of the investment fund Carval to work through a big portfolio of loans it had acquired from the liquidators of Anglo Irish Bank.
Ferris had formerly worked in Anglo from 2003 until December 2012, when he went to work for Arrow. He left two months before the state unexpectedly announced its plans to liquidate Anglo, a decision that led to the rapid-fire sale of its loan books.
As Ferris and his team dug through the bundles of loans Carval had bought, they’d come across a loan connected to a €27 million Anglo bond owned by Kearney. Someone in Arrow contacted Kearney asking if he was prepared to pay up. Kearney didn’t have the money to do so in full, so he asked Browne to try and cut a deal.
Carval had bought the loan at a massive discount, so Browne quickly worked out that they’d accept a couple of million for it. Eventually the price agreed with Carval was €2.36 million for the bond, which had a face value of €27 million.
But where to get that money? Browne said an old friend in Davy, Tony O’Connor, would be able to sell the bonds, and after meeting him, Kearney agreed. He believed a firm like Davy could be trusted to get him the best price.
On October 22, Kearney’s company Kilmona opened an account in Davy to do the deal. Kearney now thought he had Ireland’s largest and most blue-chip stockbroking firm on his side.
He was, it would turn out, terribly wrong.
As October progressed, Tony O’Connor and Browne had almost put the deal together. They presented it as a partnership, where any amount made above what was needed by Kearney to repay Carval would be split between them.
Browne set out how this was meant to work in writing on October 17, 2014. Kearney agreed to the unorthodox arrangement of paying O’Connor a personal cut as well as a fee to Davy because he had been convinced that only the veteran Davy bonds dealer could pull off the deal.
The October 28, 2014 email, using O’Connor’s personal rather than his business account, set out the playbook. In it, he refers to how Kearney would have to send a letter “authorising Davy to immediately sell the bonds in the market” once Carval had lifted its charge on them allowing their sale.
He also said a call would have to be made to “Davy on a recorded line” clearing the transaction. And he said Kearney would need to send another letter “authorising Davy” to divide the proceeds of the bond above that required to pay off Carval “three ways” between the business partners.
O’Connor also told Kearney that how exactly this should be structured was “depending on legal opinion.”
O’Connor then reminds Kearney of the need for secrecy, and of how lucky he was to have such an experienced Davy trader on his side.
“The market for these bonds is at best thin,” O’Connor said, while stressing he felt “fairly confident” he could sell them for the price required by Carval. “Having said that i had an enquiry out of the blue which struck me as strange – someone enquiring if we had seen anything in the 16s.”
The 16s was stockbroker-speak for someone prepared to pay a price of 16 cent in the euro for the bonds. Kearney needed a price of 9 cent in the euro to pay off Carval. This was good news.
“Lets hope this works – usually if it is too good to be true it is bollix maybe this time its different.”
Tony O’Connor email
“In my opinion,” O’Connor said, “the danger to the transaction is that someone in London offices of those two organisations cop wat is happening. Their best chance of copping that is if somebody is telling their trading desk that they mite be in tuch with a seller and they have bids in the high teens / twenty area.”
He added: “I can’t stress enuf the importance of confidentiality. I am confident we can locate a buyer at the right price on the day for a quick and clean transaction.”
“I am not interested in anyones opinion on where the market is – i had a well known house suggest it was a 2 cent – 5 cent market last week. The only price that matters is the real one on the day so i don’t need anyone asking gobshites where they think it is.
“Lets hope this works – usually if it is too good to be true it is bollix maybe this time its different.”
It was now accelerating. O’Connor was intermittently in touch with Kearney pushing the deal and requesting the paperwork to be put in place to get it all done. He would curse and swear, but that was how traders did things. O’Connor hinted at one point he might be able to get up to 26 cent in the euro for Kearney’s bonds and appeared to be working flat out for his client scouring the market for the best deal.
Carval had agreed to accept €2.36 million in return for the bonds so it looked like there would be money to be shared between the three partners. O’Connor seemed to be giving Kearney something that was “too good to be true”.
On November 13, a deal was very close. Browne sent over a loan agreement for Kearney to sign. The buyer was an entity called the O’Connell Partnership. The price had fallen back to 20.25 cents in the euro but this fell back to 19.5 cents after a “commission” of €207,000 was to be paid to Davy.
Around noon on November 14, 2014, Kearney met Browne and O’Connor and he signed the deal they presented with the O’Connell Partnership to sell them his bonds. He had no idea who the O’Connell Partnership was but presumed it was some sort of hedge fund. There is no suggestion Browne knew either.
At some point in this meeting, Kearney’s hackles rose. Kearney started life as a joiner and is entirely self-made. He did deals on a handshake and tended to trust people. But he was also no fool, and as he left a smiling O’Connor behind him, he began to feel a niggling sense of suspicion.
He decided to pick up the phone for a second opinion.
Patrick Kearney rang the Dublin office of Cantor Fitzgerald as he walked away from his meeting with O’Connor and Browne. He told them about the situation he was facing.
Cantor Fitzgerald told him that hedge funds were hunting for Anglo bonds as there was a growing feeling in the market that the Anglo Irish Bank liquidation was going so well it would yield a surplus.
On top of that, all of the messaging from the National Treasury Management Agency and others was that Ireland wasn’t rushing to burn bondholders, as it realised that if it did so it risked damaging its ability to raise future funding.
Cantor Fitzgerald offered to buy the bonds at 32 cent in the euro.
This was great news as it was €4.2 million more than the O’Connell Partnership was offering.
“It now appears that the bulk of the proceeds from the outstanding loan sales may be returned to IBRC’s creditors.”
Stephen Lyons, November 26, 2014
Kearney rang his partners. Annoyed, he wanted out of the deal. He felt that O’Connor and Davy had failed in their duty to him as a client, and he wanted to push ahead with Cantor Fitzgerald instead.
Heated conversation took place between Kearney, O’Connor and Browne. Kearney was told that he had signed the deal so had to go through with it. Conscious that he was in the middle of sorting out all his other debts Kearney felt pressured into doing it. The O’Connell Partnership now had his bonds.
On November 26 2014, the journalist Joe Brennan, then a reporter with Bloomberg, wrote a long article with the title: “Pilloried Anglo bondholders might just get repaid.” This was great news for the O’Connell Partnership who had bought Anglo bonds worth €27 million for 20 cent in the euro. Brennan quoted Stephen Lyons, an analyst with Davy, as saying: “The liquidation success has surpassed all initial expectations. It now appears that the bulk of the proceeds from the outstanding loan sales may be returned to IBRC’s creditors.”
We now know what happened of course. Kearney knew that O’Connor wanted a side deal, and a fee for his employer Davy. He did not know however that O’Connor was one of 16 employees of Davy who were also behind the O’Connell Partnership. O’Connor did not respond to questions sent to him.
The Davy 16 included some of the most powerful businesspeople in Irish life including Tony Garry, its chief executive at the time of the deal, Brian McKiernan, its incoming chief executive, and Kyran McLaughlin, its deputy chairman. Garry and McKiernan were on the committee that decided not to run the deal past its compliance team, nor keep notes of their considerations of the potential for a conflict of interest.
Also among the Davy 16 was Stephen Lyons, who had told Bloomberg so jubilantly about the prospects for Anglo bonds less than two weeks after he became part of a secret consortium that had bought a big chunk of them. Barry Nangle, the head of the bonds desk was also in on it, as were others.
O’Connor, for his part, had not just wanted a personal cut from Kearney, but he also wanted a fee for Davy for his advice. On top of that, he was secretly on the other side of the transaction along with 15 other Davy employees. It would take the Central Bank six years before it was able to expose this and fine Davy €4.1 million.
The transaction, which was described as “reckless” by the Central Bank, was made worse by the top management of Davy’s arrogant handling of its fallout, where nobody resigned until they were forced to.
This has unfairly damaged the reputations of the hundreds of people who work for Davy, both today and in the past.
The once-proud 95-year old stockbroker now finds itself both in disgrace and up for sale. At 8.40 pm on Thursday it said: “The Board of J&E Davy has decided to pursue a sale of the Group. Rothschild & Co has been appointed as financial adviser to manage the process.”
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Good riddance
How many of the 16 are named there?
I don’t know what’s going on with these corrupt bastards but the taxpayer will surely be stuck with the bill.
Belfast property developer Patrick Kearney has launched a lawsuit against Davy and the group of 16 former employees who were on the other side of a 2014 bond deal with the businessman that was at that heart of a Central Bank fine and rebuke last month.
The development comes at a sensitive time. Initial bids for the stockbroking and wealth management firm are being called before close of business on Friday.
High Court filings submitted on Tuesday show that Mr Kearney and his Kilmona Holdings company have sued both Davy, the firm, and the so-called O’Connell Partnership, comprising the 16 former employees, including top executives, who were involved in the controversial trade of junior bonds in failed lender Anglo Irish Bank.
Mr Kearney’s Kilmona Holdings previously sued Davy in 2015 in relation to the deal, settling his case in early 2016 for a figure understood to be between €2 million and €3 million. A spokesman for Mr Kearney declined to comment.
A spokesman for Davy said: “Davy is committed to engaging constructively on all reasonable complaints and claims. However, as this matter was already the subject of a comprehensive full and final settlement agreement between the parties in 2016, Davy is obliged to defend this case.”