he punishment for the people in charge? They get to walk away with hundreds of millions after being forced to sell the firm to make the scandal go away.
In Irish financial services, if you are senior enough, the consequences of a high-profile failure are largely symbolic and rarely material. The rewards, of course, are very material.
Because of yesterday’s €440m deal with Bank of Ireland – and the blessing of Finance Minister Paschal Donohoe – the firm now gets to paper over the cracks in its reputation with euro notes.
For the taxpayers footing part of the bill through the State’s shareholding in Bank of Ireland, the sense of fatalism surrounding this whole tawdry episode is dismayingly familiar.
For Brian McKiernan, the former Davy CEO forced to resign for his part in the bond deal, the €79m he’s pocketing from the sale of the group will go a long way toward soothing whatever he might feel for letting down his firm.
Other key actors in Davy’s breaches of financial rules – former CEO Tony Garry, former deputy chair Kyran McLaughlin, former head of bonds Barry Nangle and former head of equities David Smith – will share in another €120m or so between them.
Apart from a two-week period in March when McKiernan, Garry and McLaughlin had to resign from their Davy roles and a few choice directorships, nothing has happened that would deter anybody at the firm from pulling the same stunt again.
These men are cashing out with tens of millions each, ample compensation for the temporary embarrassment of being scolded by central bankers and badmouthed by TDs on the Oireachtas Finance Committee.
Even the €4.13m fine levied by the Central Bank – a record for an Irish securities firm – was a mere speed bump on the road to riches for Davy shareholders. The firm made more than €32m in profit in 2020, easily enough to absorb the penalty without troubling the money men.
Standing over this tidying-up exercise is a trio of major figures in Irish finance who enjoy sterling reputations among their colleagues and whatever portion of the public pays attention to such things.
Davy chair John Corrigan, once CEO of the esteemed National Treasury Management Agency (NTMA), moved swiftly in March to oust the culprits within Davy so that none of the 16 remained at the firm and commissioned an independent review of staff dealing at the firm.
Davy CEO Bernard Byrne, who was parachuted into Davy in 2018 from his perch as chief executive of AIB, presumably to shore up the firm’s standing with regulators and clients, is now himself in line to be amply rewarded for steering the ship through choppy waters.
Finally, Bank of Ireland CEO Francesca McDonagh, one of the most vocal senior Irish executives when it comes to corporate social responsibility and governance issues, moved aggressively to grab Davy when the prize became available.
Notably Bank of Ireland’s statement announcing the deal mentioned just two factors behind the acquisition: shareholder value and business fit. Tellingly, culture was referenced only as something Bank of Ireland had to offer Davy.
But it’s hard to blame these three for doing their fiduciary duty, especially when all of corporate Ireland also looked the other way.
Davy is corporate broker to many of Ireland’s biggest listed companies. None of them fired Davy after the bond deal revelations and Central Bank action.
CRH has recently appointed Goodbody as joint corporate broker alongside Davy in what appears to be a risk mitigation exercise, but Davy has not been pushed aside.
Kerry Co-op also used Goodbody for a recent multimillion-euro sale of some of its shareholding in Kerry Group, even though Kerry is a Davy client. But that’s it.
Bank of Ireland is also a Davy client and expressed “disappointment” in March, but after seeking assurances that the firm was dealing with the issues, it is now clearly satisfied that all is okay.
To that end, the independent review by consultants Alvarez & Marsal provides a certain amount of cover for all concerned. The investigation did find that a small group of Davy employees were involved in a high volume of trades for substantial amounts of money right up until the end of last year.
A&M recommended in its report that the “total value of trades being executed in staff accounts in future should be significantly less than values up to year end 2020”.
But no other instances similar to the 2014 bond trade were uncovered, although some high-value trades showed signs of potential conflicts and Davy did not have the systems and controls in place to document or properly review them.
Its recommendations are that the firm remedy these deficiencies and clamp down on unsupervised staff dealing.
Nobody has even recommended a rebranding, a standard approach to tarnished reputations. Apparently the Davy name still carries the necessary currency.
