Irish broking: BofI should not waste Davy’s crisis

It’s not just business. It’s personal. Some staff at Irish stockbroker Davy took the company slogan a little too literally back in 2014. Revelations that former employees secretly took the other side of a client trade have triggered a record fine, the departure of the chief executive and the closure of the bond desk. Bank of Ireland may swoop on this historic but struggling business. It would be a tidy solution to a growing national embarrassment.

Davy splits a duopoly at the top of corporate broking in Ireland with smaller rival Goodbody, which Allied Irish Banks plans to acquire for €138m. Competition is strong enough for the Irish stock exchange to remain an attractive venue for corporate financing. Maintaining that is one reason for ensuring Davy remains in business.

The scandal relates to bonds in the defunct Anglo Irish Bank. In 2014, a group of Davy employees bought Anglo bonds from a client to sell on at a profit without Davy or the client’s knowledge. Further regulatory action may follow the €4.1m fine as watchdogs take a closer look at the books.

Current clients will question the company’s practices and its involvement in past deals. Expect any future liabilities to be factored into the price of any BofI bid.

AIB sold Goodbody a decade ago for €24m as part of a bailout. The repurchase announced earlier this month signalled an acceptance that ties between banks and brokers broken after the financial crisis could be re-established. The higher price reflected growth in the interim.

Both Goodbody and Davy have expanded asset and wealth management businesses, now with €9bn and €14bn of AUM respectively. Steady earnings from this are an attraction for banks facing dwindling interest income.

Ireland’s central bank may feel happier if Davy is brought into the ownership of a bank under a regulatory framework that is now relatively strict. BofI should not waste the opportunity the crisis has created. Meanwhile, Davy brokers can heave a sigh of relief — restrictions on banker bonuses are unlikely to apply to them if BofI buys the business.

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