Did Davy not learn from the past?

Davy was always a house of high finance, where professional investors made fortunes when markets were riding high. But in the broker's entanglement with credit unions it was local institutions funded by small-time savers whose money was at stake.

At the end of a catastrophic week for Davy, the company is for sale. This is the direct result of a €4.13 million Central Bank fine over a 2014 Anglo Irish Bank bond deal in which Davy was on two sides of the transaction.

Only now do we know that Davy had come to supervisors' attention years previously for something similar in bond deals with credit union clients. Questions arise for Davy and the Irish Stock Exchange (ISE), its regulator until 2007. Euronext took over the Irish Stock Exchange in 2018.

The ISE found – but never said publicly – that Davy breached market rules in 2005 by dealing as “principal in the purchase and sale” of a perpetual bond in Oko Bank of Finland without telling credit union clients.

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The transaction was part of a series of deals in which more than 140 credit unions bought some €183 million in several open-ended bank bonds from Davy. These investments soured as the global financial crisis set in, prompting a dispute with Davy and, ultimately, a €35 million settlement in 2008 that covered about half the credit union losses. The bonds did not comply with the rules governing credit union investments.

The exchange issued a statement in 2009 saying Davy breached market rules and alluding in vague terms to unspecified issues over “the completeness of disclosure of certain information” to clients.

But the most severe conclusion – that Davy was principal in the Oko purchase and sale, which it disputes – was omitted. It was left to the Central Bank, where Matthew Elderfield was then head of financial regulation, to require Davy to tell credit unions what precisely the stock exchange had found. When that happened in 2010, many credit unions had already settled.

The ISE statement doesn’t look now like much of a censure. To make matters worse, the exchange concluded by saying the ISE was confident that “remedial action” taken by Davy would mitigate against recurrence of breaches. Not so.