Davy shuts bond desk after losing Irish government mandate

Ireland’s largest stockbroker is closing its bond desk after losing its mandate to sell government debt in the wake of a damning regulatory investigation that had already prompted the resignation of three of the broker’s most senior figures.

Davy Group said on Monday evening that the closure, with four redundancies, was “arising from recent developments” that included a central bank investigation and the loss of Davy’s mandate as a primary dealer of government bonds following a decision by Ireland’s treasury agency earlier on Monday.

The Central Bank of Ireland last week fined Davy Group $4.1m after finding that 16 of its staff, including some senior executives, covertly bought bonds from a client in 2014 and then aimed to profit by selling them on.

Davy said that as a result of the redundancies “none of the individuals involved in the 2014 transaction are working in Davy”. A person familiar with the situation said the people would receive industry standard redundancy, without specifying what that was.

Davy, a 95-year-old privately owned company that has been a bastion of corporate Ireland, was lambasted for not having controls in place to make sure that conflicts of interests were managed and that staff could not use their personal accounts to profit from client deals.

The broker was also criticised for providing “vague and misleading details” to the central bank’s investigation and “wilfully” withholding “information that would have disclosed the full extent of the wrongdoing as was known to Davy at the time”.

“The board of the National Treasury Management Agency (NTMA) has withdrawn J & E Davy’s authority to act as primary dealer in Irish Government bonds with immediate effect,” the body said in a statement on Monday.

Primary dealers are required to make markets in government bonds, a prestigious but unpaid role that also positions them well to win mandates on government syndicated debt deals, such as Ireland’s €5.5bn offering in January where Davy was appointed along with a handful of other banks including Nomura, Deutsche Bank, JPMorgan Chase and Bank of America.

“A primary concern for the NTMA is to maintain the reputation of Ireland as a sovereign issuer in the bond market and the orderly functioning of the market for Irish government debt,” the statement from the agency said. 

“In this context, the NTMA believes that the behaviour described in the central bank findings falls substantially short of the standards expected from market counterparties, peers and colleagues in the bond market and is potentially damaging to Ireland’s reputation as a sovereign issuer.”

Opposition politicians called on the NTMA to sever ties last week. The agency said its decision was made “based on its assessment of the very serious findings relating to the firm that were made by the Central Bank of Ireland last week and following engagement with investors in Irish government debt over recent days”.

The topic is expected to feature prominently at a meeting between Ireland’s parliamentary finance committee and senior central bank officials on Tuesday.

Davy did not immediately comment on the development, which follows the weekend resignation of chief executive Brian McKiernan, its head of bonds Barry Nangle and non-executive director Kyran McLaughlin.

Davy was the only Irish-owned company among a group of 15 authorised primary dealers of Irish bonds that includes global banks such as Citigroup and Goldman Sachs, European banks including Deutsche Bank and Danske Bank, and brokerages like Cantor Fitzgerald.

Ireland is due to hold its next government bond auction on Thursday, when it will go to the market for between €1bn and €5bn of treasury bonds.