Stockbroker Davy will close its bond desk, resulting in four redundancies, as the brokerage seeks to draw a line under a crisis emerging from a Central Bank fine and rebuke over breach of market rules over a 2014 bond deal.
The brokerage said that following the move none of the 16 individuals involved in the trade at the centre of the matter are working for the firm.
The announcement came hours after Davy was suspended as a primary dealer in the Irish Government’s debt.
The Irish Times reported that the National Treasury Management Agency (NTMA) informed the market of the decision on Monday afternoon, ahead of a bond auction scheduled for Thursday.
Davy was the only Irish-owned primary dealer of Government bonds and managed over €14 billion of client assets, according to its website. The suspension took effect immediately.
In a statement, the board of the NTMA said it had reached the decision 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.”
“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 agency said.
Davy would have been required to find buyers for State debt at the bond auction on Thursday as the NTMA seeks to raise as much as €1.5 billion, and stood to make a considerable amount in fees.
Bond deal scandal
In a statement, the Minister for Finance Paschal Donohoe said he “notes and supports” the NTMA decision as the appropriate one.
The suspension comes as the brokerage continues to deal with the fallout from a bond deal scandal that has seen high-profile resignations and a record €4.1 million fine for the firm from the Central Bank of Ireland.
The scandal concerns a 2014 deal where Northern Ireland property developer Patrick Kearney sold junior Anglo Irish Bank bonds through Davy at a steep discount in order to settle a debt.
A Central Bank investigation found the Davy 16 were the buyers on the other side of the trade seeking to make a profit, without Mr Kearney’s knowledge or the knowledge of the stockbroker's own compliance officers.
The situation quickly spiralled into the biggest crisis in Davy’s 95-year history, as Mr Donohoe called on the firm to address how it fell “gravely short of standards that are expected of leaders in position of financial responsibility”.
On Saturday, chief executive and board director Brian McKiernan resigned alongside non-executive director Kyran McLaughlin and head of bonds Barry Nangle.
Earlier on Monday, it was reported that members of the Davy 16 now face the possibility of personal sanction from the Central Bank.
The bank, which regulates the sector, can turn its attention to the behaviour of individuals after its recent decision to fine the business, Minister for Public Enterprise and Reform Michael McGrath said.
The general secretary of the Financial Services Union, John O’Connell, has called for a thorough, independent review of the operation of the stockbroker.