CEO Brian McKiernan and deputy chair, Kyran McLaughlin, have now both left stockbroking firm Davy. Sixteen have left the firm, with a subsequent four leaving after Davy closed their Bond desk, (with the news being made public on the 8th March). The Bond desk is at the heart of the scandal that has rocked the company in recent weeks.
This scandal involved a client owning Anglo Irish Bank bonds and wanting to sell them in 2014. Paddy Kearney, a property developer, approached Davy, believing they could sell his bonds and give him the best price. They estimated a value of €27 million.
Davy staff members did not tell Mr Kearney that they were not going to try and sell them for him; they would instead buy the bonds and attempt to resell them and pocket the gains. They undersold the property developer; it is reported that Kearney sold his shares to Davy at 20.25c on the Euro while he could have gotten up to 32c. The deal was worth €5.58 million, which Kearney believed he was low-balled in, resulting in him taking legal action against the company.
Davy sold a portion of the bonds after showing other investors the bond's actual value without disclosing that they also owned them. It was structured this way as it was a method for the 'Davy 16' to avoid the company’s compliance system, which has been called “weak” by the Central Bank.
Davy willingly withheld information from Paddy Kearney and this case lasted five years. The Taoiseach Michael Martin had words to say of Davy’s behaviour in the Dáil on Thursday, stating, “The behaviour by Davy executives was unacceptable and, I think, reveals an appalling culture of greed, and has damaged the reputation of the financial services sector in this country.”
In 2014, the same year as the initial deal, Davy was ordered by the High Court to pay a former client €2.1 million because they showed neglect. The client had an intellectual disability and suffered two strokes by the age of 10. The young man inherited €5 million, and Davy showed neglect and a lack of duty of care when they encouraged him to make risky and poor investments.
Further, they encouraged him to take out loans for CFDs, which could have resulted in losses up to €30 million. Davy never fully explained or reflected over their actions during this instance.
Founded in 1926, Davy has been around for 95 years and has many stakeholders, some of whom have their money invested there and might be pressured out over this scandal. Other stakeholders are monitoring the situation, as is the case with Glanbia. The National Treasury Management Agency is out as well, removing the company from its roster of primary dealers.
Davy employs over 700 people and holds an estimated wealth asset value of over €14 billion. The scandal over the 'Davy 16' has negatively impacted the firm and resulted in huge reputational damage. The company is now up for sale following this scandal, with this option being seen as the only path to redemption.
In two weeks, Davy has fallen from grace and is hoping new ownership following its sale can quell the scandal that has rocked the financial trader. It is speculated that Davy will sell for well below 50% of the company’s value prior to the scandal because of their disgrace.
The Central Bank issued a fine of €4.1 million in early March, the largest fine ever imposed by the Central Bank. This is in stark contrast to Davy’s previous boast on their website that they had a 97% trust rating among their customers. In the end, what is central to all of this and the many previous cases against Davy is a lack of ethics and an organisational culture in the company that sees no wrongdoing or any responsibility.