Davy holding company owes future parent BoI €94m

As Bank of Ireland prepares to take over Davy, it faces having to deal with a major lender to a holding company above the stockbroking firm: itself.

Accounts filed by the UK unit of Davy, J&E Davy (UK), this week offer little insight into the financial performance of the wider stockbroking and capital markets firm, which is unlimited. The unit’s €11.5 million of revenues last year accounted for a little more than 6 per cent of the group’s reported €190 million total.

J&E Davy (UK) became UK-regulated subsidiary of Davy in 2018 as the group prepared for Brexit and, as part of that restructuring, became a guarantor for borrowings of a group holding company, called Green Note Unlimited.

Notes in the accounts highlight that Green Note owed Bank of Ireland €94 million at the end of 2020, down from €100 million a year earlier. The loan, dating from April 2018, was an amendment of a facility agreed in 2013 and carries an interest rate of 2.25 per cent.

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It falls immediately due and repayable upon change of control of the group, according to the note.

Bond-trade scandal

Bank of Ireland agreed in July to buy Davy for an enterprise value of €440 million, four months after the firm put itself on the market in an effort to draw a line under a bond-trade scandal.

A spokesman for Davy declined to comment on how the liability will be dealt with.

The loans are known to be a legacy of Bank of Ireland backing the repurchase by Davy in 2013 of €140 million loans from the liquidator of Irish Bank Resolution Corporation, formerly Anglo Irish Bank.

Anglo had backed a management buyout of Davy from Bank of Ireland in 2006 with about €300 million of loans. Those loans were paid down at pace in the subsequent years, even as the Republic grappled with the financial crisis.

Davy put itself on the market in March as the firm grappled with the fallout from a €4.1 million Central Bank fine relating to a bond trade dating back to 2014. Davy was found to be in breach of market rules for failing to identify whether a conflict of interest existed as 16 employees bought junior bonds in Anglo Irish Bank from a client in November 2014 without disclosing that they were the buyers.

Regulatory approval

Davy kept its own compliance officials in the dark on the deal.

The Bank of Ireland deal in July, which remains subject to regulatory approval, also includes the possibility of up to €40 million of further payments from 2025 to remaining employees of the securities firm, subject to business performance.

In addition, the bank will pay a further €125 million for excess cash on Davy's books. A large portion of this will come from the separate sales of Davy's fund servicing and fund management arm and its 63 per cent stake in Rize ETF, a UK-based exchange traded funds business.