Davy in disgrace: Part 1 – the Belfast developer, the Davy bond dealer and the ex-Anglo banker

It was a deal that brought Davy, Ireland’s biggest and most powerful stockbroker, to its knees, tarnishing both its reputation and its relationship with key clients. 

The deal took place in late 2014, but it would take the Central Bank years to unravel its structure and to announce its censure. And when the regulator finally reported in March this year, it triggered a chain of rapid-fire events that would force Davy to put itself on the market. 

Fining it a record €4.13 million, the Central Bank described Davy as acting “recklessly” as it “prioritised” a group of 16 of its staff making a “personal financial gain over ensuring that it was complying with its regulatory obligations”.

Tánaiste Leo Varadkar described what had occurred succinctly: “It’s as though you were selling your house, the auctioneer pretended to be trying to get the best price for you but was actually the buyer himself.”

The scandal, and the insincere, indifferent way the broker initially responded to it, led to the resignations of Davy’s powerful chief executive Brian McKiernan and head of its bond desk Barry Nangle. Its deputy chairman Kyran McLaughlin, for decades a driving force in the firm, too announced his retirement.

Davy shut its bond desk which had carried out the deal, a desk that had represented Ireland for years on the international markets. The NTMA pulled its business. Other blue-chip corporates openly revealed they were reviewing their relationship with the broker.

Within days, the board of Davy announced the business, founded in 1926 and at the core of the Irish establishment, was being put for sale.

But just how much do we know about the 2014 Anglo bond deal that toppled the Davy hierarchy? For the past four months, The Currency has been investigating the transaction, examining who said what and who knew what. 

Based on multiple sources, documents, courtroom filings and new information, this is the inside story of the Anglo bond scandal.

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On Thursday November 13, 2014, Patrick Kearney received a message that caused him to stop and think. He was just about to sell his bonds in Anglo Irish Bank, the failed Irish lender. The bonds had a face value of €27 million and the message was from his advisor Tom Browne. Davy the Irish stockbroker had been in touch and Browne briefed Kearney that he would receive 20.25 cent in the euro for the bond. Kearney was disappointed as he had been under the impression the bond might have fetched more. By then Kearney was a long way down the road of selling his bond. Indeed, he had already opened a Davy client account to do the deal, and the paperwork was ready to sign.

Nine days earlier, Kearney’s company Kilmona had formally instructed Davy, in writing, to sell the bonds at a price of 15 cent in the euro “or better”. This was the minimum price he needed in order to clear a charge on his bond – a charge which related to a loan he had taken out from Anglo to buy the bond.

There was a fee due to Davy of €207,000 too, so the price he was actually getting fell to 19.5 cent. It would later emerge that this fee, which Davy asked for prior to the deal, was never pursued. But Kearney didn’t know that yet.

Belfast-born Kearney had left school early during the Troubles to make his way in business. He had an instinct for when things did not feel quite right that had guided him during the decades when Belfast was at times a warzone. He started to think of reasons why the price of his bond might have fallen. There had been nothing obvious in the news, but then again, he was not an expert in the bond market. That is why he had retained Davy. It was a niggle more than anything else.

The following morning, Friday, November 14, 2014, Kearney, as he made his way to Dublin, decided to ring a broker he knew in Cantor Fitzgerald, a rival brokerage. He wasn’t very suspicious, but he felt there was no harm in getting a second opinion. Kearney told a broker in Cantor Fitzgerald about his Anglo bond and the price he was being offered for it, asking him to get a price for it. The broker said he knew there were big funds trying to buy these bonds in the market, but he’d need to know more to get a price.

Kearney agreed to meet the broker for breakfast in Dublin 4. He told him about his Anglo bond and had all the paperwork to back it up. Kearney told the broker to ring him back when he had a price and carried on to the meeting he had come to Dublin for. His destination was a boutique corporate advisor called LeBruin Private in Marine House near the Grand Canal in Dublin 2.

There he was greeted by his friend Tom Browne, the co-founder of LeBruin. Kearney knew Browne for decades from his time as a senior banker with Anglo Irish Bank. There was another man there too, someone Kearney had met for the first time on October 1 (Browne was at that meeting also).

He was Tony O’Connor, a veteran bond trader with Davy. It was coming up to noon that day, and three men greeted each other cordially. O’Connor and Browne were not just helping him sell his bond, but they were also his business partners. Based on a 19.5 cent price, O’Connor stood to make a €750,000 personal fee for closing the deal, while Browne’s company LeBruin planned to charge Kearney €900,000. Kearney would get over €1 million from his cut of the profits.

Or at least that was the plan, before the partners fell spectacularly out.

“The market for these bonds is at best thin”

Patrick Kearney is a former joiner from west Belfast who, over a number of decades, steadily built up a portfolio of more than 100 multipurpose properties. Most were in his native Northern Ireland. He took over his family business in 1962 at the age of 17 when his father retired early due to ill-health brought on by the stresses of the Troubles. Kearney made his money hanging doors and fixing up buildings; sometimes after they had been damaged by the bombings and riots that ravaged Belfast during those years. He saved his money and used it to buy a modest office. He didn’t go to a private school or have the benefit of university education, but he was hard working and tended to do deals on a handshake.

The story goes that he was Anglo Irish Bank’s first customer in the North. True or not, he was certainly one of its biggest customers there from the late 1990s on. As a result, he was friendly with many of its senior executives in Dublin, including Tom Browne.

The website for Kearney’s property group Kilmona details the range of the assets he built up. He owns three hotels including the Ten Square Hotel in Belfast and he owns a number of holiday villas called Sotogrande near Cadiz in Andalucia in Spain. He has built various residential housing projects over the years and owns a number of office blocks and business parks. One of them called 9 Lanyon Place has 150,000 sq ft of ‘Grade A’ office space with tenants including the Northern Ireland civil service. His group employs about 300 people.

After the 2008 crash Kearney, along with hundreds of other developers, had his loans transferred to the National Asset Management Agency (Nama), a vehicle set up by the state to take commercial real estate loans from the floundering Irish banks.

Nama threatened to appoint administrators to Kearney’s business to try and force him to start selling all his assets. Like most developers, Kearney felt they’d come right in time, so he resisted.

Reflecting back on his Nama-ed years, Kearney told a November 2015 committee hearing in Northern Ireland that: “For me, it was a life-or-death situation: I was effectively fighting for my family’s and employees’ welfare and future.” Attending the committee hearing with him was his advisor Alan Mains, who he described as a “long-standing family friend and associate.” Mains is a formidable character who as a former head of the Economic Crime Bureau with the PSNI has investigated some of Northern Ireland’s most dangerous criminals including Thomas ‘Slab’ Murphy. Mains was not involved in the events of November 14, 2014, but he becomes important in its aftermath.

Kearney told the 2015 committee hearing that he asked the then First Minister Peter Robinson to assist him, and Robinson wrote a letter to Nama asking the agency to meet him. Kearney was far from the only developer in the North unhappy with Nama. Robinson and other politicians began to put pressure on Nama because they saw it as suppressing economic activity in the North. “Holding on to assets to realise their value in the long term does little to boost our economy right now,” Robinson said publicly at a DUP meeting in September 2013.

Nama has sweeping powers in the Republic to call in loans, but it became concerned that if it went to enforce in the North, it might be blocked in the courts, or stalled politically. In September 2013 Pimco, a $2 trillion dollar asset manager, approached Nama offering to take its entire Northern book off its hands. In the months after that approach, Nama decided to run a process – codenamed Project Eagle – to sell the portfolio. It resulted in the sale of its entire Northern book for €1.4 billion to Cerberus in April 2014. These loans had a face value of €5.38 billion, and Cerberus would go on to make a fortune as it sold these loans on to either their original borrowers or others. The circumstances of the sale of Project Eagle are the subject of various investigations.

From the summer of 2014 on, Kearney was flat-out trying to do a deal with Cerberus and refinance his loans. Tom Browne’s LeBruin approached Kearney with an offer from Marathon Asset Management to help him do this. LeBruin had done a bit of work for him before in relation to Nama, which Kearney had paid for. Kearney liked the LeBruin refinancing proposal but in the end, he went with a different deal with a US investment company called Jefferies LoanCore (JLC). It was a stressful period for Kearney and his team, as they sought to refinance his portfolio with JLC, and cut a deal with Cerberus.

However, in late August or early September 2014, Kearney received a phone call from James Ferris in a company called Arrow Capital. Ferris explained how he was acting for another overseas fund called CarVal, which had acquired a large volume of loans from the liquidators of Anglo Irish Bank. Arrow was now working through those loans on behalf of CarVal.

Among these loans was a debt secured on a bond in Anglo with a face value of €27 million that was owned by Kearney. It was a headache Kearney didn’t need at such a delicate time.

He decided to ask Browne to help him. It was a way of giving him something after all the work Browne had done on the Marathon deal, which had yielded no fees. Browne knew Ferris from their time together in Anglo, just as he knew lots of other former Anglo bankers who were now working for various overseas funds around town.

Browne had a good friend on the bond desk in Davy called Tony O’Connor, and he asked him to help out.

Browne, meanwhile, started talking to Arrow. Around October 2014 he reached a deal with the fund manager under which they would accept €2.36 million in return for releasing their charge. Kearney decided to split any profits made from selling his bonds above that price with Browne, but this was extended to include O’Connor too. It was unorthodox to cut O’Connor personally in on the deal, but as Kearney saw it, the structure ensured that all parties were all aligned and motivated to achieve the best possible price for his Anglo bonds.

O’Connor set about putting his side of the deal together. On October 28, 2014, he told Kearney using his Gmail account that “The market for these bonds is at best thin,” but he was “fairly confident” that he could sell them for more than what was required by Carval to settle his debt. He said the “danger to the transaction” was that Carval/Arrow realised that the bonds were worth more than they were being offered.

“Lets hope this works – usually if it is too good to be true it is bollix maybe this time its different,” O’Connor concluded.

By Friday, November 14, 2014, Tony O’Connor had found a buyer. It was a low-profile entity called the O’Connell Partnership. According to evidence given by Kearney in the High Court, he was told that the partnership consisted of Davy clients.

Bonds, bailouts and Tony O’Connor

Tony O’Connor is a stocky individual with long hair. He is not that dissimilar in appearance to a mid-career Jack Nicholson. Certainly, he has the confidence of a trader used to the cut and thrust of deals. He is numerate, quick-witted and uses colourful language, which is not unusual in his business. Like Browne, he is from Limerick originally. After studying business in UCD O’Connor had spent 11 years in the civil service before finding his true calling, when he started money broking with IIB Bank. After a year he moved to Fitzwilliam Money Brokers, where he also stayed a year, before joining another brokerage set up by Oisin Fanning, MMI, in the early 1990s. These were formative years for O’Connor, and he thrived in that fast-paced environment.

In 1995 he joined Davy as director of its money desk, a busy area to be in ahead of the arrival of the euro. In an era of high-interest rates, running the money desk involved a lot of interbank dealing and working with treasury teams in Ireland’s main banks along with overseas financial institutions.

Anglo was a Davy client, and O’Connor was tight with a number of its senior team including Browne. Money broking was a business based on relationships, and O’Connor was expected to entertain his clients regularly. He took to this side of his job with gusto for many years but later reduced the late nights as he got older.

Like many traders, O’Connor was interested in sports betting, but he later stopped this too. He was a sports fan and was known in Davy for being able to get his hands on tickets for matches – both locally and overseas. Browne, as a senior banker in Anglo, often ended up going to the same tournaments with his leading clients, so he would bump into O’Connor.  

Gradually, O’Connor moved more towards Davy’s bond desk as the arrival of a lower-interest-rate era and the euro meant the need for money broking reduced. His timing joining the bond desk in 2010 was good, as the need for bonds surged in the wake of the financial crash.

Based in the coastal village of Malahide in north Dublin, O’Connor lived near his boss Barry Nangle. Nangle lives in Abington, a luxury estate in Malahide, and his house was next door to David Drumm, before the former chief executive of Anglo Irish Bank’s fall from grace.

O’Connor lives a few roads away in a nice but more modest house, so he would often bump into Nangle outside work, or going to and from Dawson Street. O’Connor wasn’t that close to Nangle, but they were not unfriendly either. Nangle was his boss so there was a bit of distance there. O’Connor, with his closeness to the money market, saw the signs of the looming financial crash in 2008 earlier than most. In the chaos that followed, he proved his worth to the firm.

From 2010 on, he was full-time on the bond desk, making millions for Davy trading in what was a golden era for bond desks. Davy’s desk was considered the best in Dublin, and it was used by everyone from hedge funds looking for a quick turn to the Irish state. Ireland’s NTMA was determined to get back into the bond market, and it constantly reassured investors there would be no mass burning of bondholders. Many institutional bondholders didn’t believe them, and they dumped their positions in Irish state and bank bonds.

Gradually a number of large hedge funds were won around to the Irish story. Those that did so at scale made huge killings and paid out substantial fees to desks like Davy’s. This was the price Ireland decided to pay in order to exit the bailout and regain its economic sovereignty.

Kearney and his Anglo bonds

How did a former joiner from Belfast turned property developer end up owning €27 million worth of Anglo bonds? It is a complicated tale that goes back to the tumultuous years of 2008 and 2009. After Anglo Irish Bank was nationalised in January 2009 its shareholders were wiped out. Announcing its plans to take over Anglo the state was careful in what it said: “Creditors (including bondholders) of Anglo Irish Bank can be assured that it will continue to service its obligations and will repay its debts at maturity.”

One of the shareholders in Anglo wiped out when the bank was nationalised was Patrick Kearney. He only became a shareholder in Anglo because the bank asked him, along with nine other trusted long-term clients, to buy 1 per cent of the bank each in July 2008 from the tycoon Sean Quinn. To encourage the so-called ‘Maple 10’ to participate in the deal, the bank loaned them money at only 25 per cent recourse with the hope being this would stabilise the bank.

Anglo advanced this group of clients the money to buy its own shares, a structure that would later lead to a criminal trial and conviction of a number of its bankers. Presiding over this trial Judge Martin Nolan however said in 2014 that he had been impressed by the Maple 10. “They were certainly good men and acting with good motives,” the Judge concluded.

But that was all ahead. The problem facing Patrick Kearney after Anglo was nationalised was that he owed the bank a substantial sum in relation to the Maple 10 transaction. Kearney decided in 2009 to acquire subordinated bonds in the bank with a face value of €27 million, with the idea being these would act as a hedge against his Anglo debt. Kearney figured if Anglo tried to call in his Maple 10 loan, he could use his Anglo bonds to pay the bank off. The bank knew this was his thinking, which became important later as it linked his Maple 10 loan to his bond loan, raising questions about the bank’s security.

In any event, Anglo agreed to lend Kearney about €19 million to acquire his Anglo bonds. This could be seen as an unorthodox loan for a nationalised bank to make, but there was considerable paperwork explaining the business logic behind it. The loan was to be essentially “self-financing”, as the interest charged on Kearney’s loan from Anglo to buy its bonds roughly equated to the coupon due from the bond. The plan was that when the bank repaid Kearney €27 million when his bond matured, this would yield a profit of €8 million above its purchase price, which was money he would use to pay off the recourse element of his Maple 10 loan.

At the time Anglo advanced the money, Kearney’s estimated net worth was £125 million and he had £10 million in cash. He was considered good for the money. The bank’s credit committee and its new board, then including directors appointed by the state, approved the deal.

At the time, there was no sense from the state that it planned to liquidate Anglo, so its bonds were not considered a risky investment.

After 2009, Anglo asked Kearney several times to repay his share purchase loan, and he said he would give up his bonds in return. The bank did not accept this deal. Anglo did not however move against Kearney as there was now considerable uncertainty around the legality of the Maple 10 loan it had given him, raising question marks around its security.

In the end, Kearney’s various loans secured on his property portfolio in the North were dispatched to the National Asset Management Agency, including his Maple 10 loan. However, it held onto his loan secured on his bonds, as the bank’s management figured it could deal with it eventually. Kearney’s bond was years away still from maturing, so there was no particular rush.

The hunt by hedge funds for Anglo bonds

On February 7, 2013, Anglo, by then rebranded as the Irish banking Resolution Corporation, was dramatically liquidated by the state. This caused the value of Anglo Irish Bank bonds to nosedive to as low as 12 cent in the euro, amid fears that liquidators would burn bondholders. But it didn’t take that long for the price of Anglo’s bonds to start ticking back up. For one thing, within six months afterwards questions started being asked about whether there was a need to liquidate Anglo at all.

Mike Aynsley, the former chief executive of Anglo, told me in an interview on July 28 2013, that up until the bank was placed into liquidation “the bank was solvent and in full compliance with its capital requirements…” But that was just the opinion of one man in an interview, albeit a credible one.

In October 2013, the former board of Anglo chaired by Alan Dukes, a former Fine Gael minister, lodged an official statement of affairs with the Department of Finance stating that the bank was solvent up until the moment they were removed as directors. The board claimed the state had taken a number of steps that created a situation that meant the bank had to be liquidated. Anglo’s old board said there were financial machinations by the government that essentially created a €3 billion hole in Anglo. By changing the valuation of a promissory note, it had made the Anglo balance sheet insolvent.

A number of hedge funds had worked this out too and threatened to sue the liquidators of Anglo and the state, as they believed the liquidation had been “contrived” to burn their bond holdings. Prior to the liquidation some of these funds had been buying Anglo bonds at 10 cents to 20 cents in the euro or depending on the terms of the bond, sometimes higher. So there was a lot of money at stake.

A group of hedge funds were informally talking. They were tough, well-funded and used to getting their way using litigation. Assenagon, a German hedge fund, had successfully sued Anglo Irish Bank in 2012 in England preventing it from pushing through a “coercive” buyback of bonds. In a note to clients, English law firm Brown Rudnick described this as a “dramatic vindication of bondholder rights”.

The results of this ruling were pored over by lawyers and advisors for the hedge funds, as they planned to fight any attempt to burn them.  Munich-based Xaia Investments, headed up by Dr Wolfgang Klopfer, confirmed in an August 2013 interview it had a position in Anglo bonds. It said it expected to be paid in full and would sue to ensure it was. “I expect a European government to act within the laws and once they act within the laws, there is no need to sue,” Klopfer told The Sunday Independent. “I’m very confident that they will do it – and if they don’t do it, yes [he would sue].”

And then there was the biggest beast of all. Burlington Alpha and Burlington Beta, two funds linked to Elliott Management. The giant hedge fund controlled by US billionaire Paul Singer, came on to the pitch in September 2013. They tried to protect subordinated bonds they owned with a face value of $75 million by forcing Anglo’s liquidators to use its US-based assets to repay them. Elliott Management was a formidable foe who had defeated Argentina in a long-running corporate war when the Latin American country had tried to burn one of its investments. These were very serious players who let it be known in the market that they were interested in buying more Anglo bonds if anyone wanted to sell them.

As all of this talk of litigation was going on, KPMG, as liquidators of IBRC/Anglo, were swiftly disposing of its assets. Time and again, it did better than expected as confidence in the Irish economic story returned.

Some of the bank’s best clients repaid their debts in full, almost an impossibility a few years earlier. In December 2013, management at Davy acquired its loans of €140 million, at a minor discount of €4 million, reflecting the cost incurred in refinancing their debts with Bank of Ireland.

But the real big deals were done by giant funds and investment banks which were paying billions to buy swathes of loans. Deutsche Bank, Lone Star, Goldman Sachs, Oaktree, and Carval were all buying huge amounts.

On June 6, 2014, KPMG published its first progress update. This showed the liquidation was attracting huge interest, and KPMG had managed to sell €20 billion of loans. That summer and towards the autumn of 2014 the talk within Anglo was that a surplus was possible, and as time went on this sense grew not just in the former bank but also outside it. The cases being taken by the various hedge funds lurked in the background, but they didn’t progress as they began to see they mightn’t need to litigate, but just had to wait.

This possibility of a surplus caused Anglo’s bonds to rise. A number of hedge funds were hunting for them, often like Elliott adding to substantial positions they already held. They let it be known in the market they were out there and ready to buy, both among Dublin-based brokers like Davy, Goodbody and Cantor Fitzgerald, but also in London. 

A factor that had to be considered by any bond purchaser was a long-running case being taken against the bank by the family of Sean Quinn. The Quinns were looking for €4.5 billion, which if successful, would wipe out any surplus. While few believed the Quinns would get that much, it was not seen as impossible in 2014 that they might get a substantial sum. Hence, Anglo’s bonds, while rising, still traded significantly below par. The Quinns had been caught “asset stripping” by the bank and the view was the state was never going to pay the family anything near what they were asking for. Another factor at play was politics. Paying out money to Anglo bondholders would be controversial, but it was felt it was very unlikely the government would block such a deal for fear it might impact Ireland’s ability to raise money in the markets. So, there was some uncertainty, and as a result, Anglo’s bonds traded at a discount, but it was one that seemed to be narrowing over time.

Getting to potential buyers of Anglo bonds wasn’t easy for the man on the street. Pricing wasn’t readily available as it is for ordinary shares. It required specialist bond desk experience to know the type of funds that were interested in buying them.

The other issue Patrick Kearney had was that he was considerably indebted at the time to Cerberus which had control of his property loans in the North. He needed a temporary unsecured loan from somewhere, which a conventional bank would never have given him. He went to Tony O’Connor and Tom Browne to solve this tricky situation.

Tony and Tom

In his October 2014 emails, Tony O’Connor presented himself to Patrick Kearney as having the knowledge that the developer required. That is why Kearney agreed to give him a profit share in order to motivate him to get the highest price he could. The person O’Connor most admired in Davy was Tony Garry, its uber-wealthy then chief executive who lives in Foxrock, Dublin 18. The two men got on.

Garry was from a bond market background too, and, like O’Connor, he was a former civil servant too. It was the final months of Garry’s tenure; he was due to officially step down in March 2015.

O’Connor wasn’t that close to Garry’s anointed successor Brian McKiernan, as he was from the private wealth side of Davy’s business. McKiernan took a more metrics-based approach to making money, while Garry was seen as more of a relationship-based dealmaker.

Garry had helped O’Connor at times over the years, as he had many others in the firm. O’Connor had a reputation for being quick witted. His sense of humour could be cutting, so younger staff found him a little intimidating, but he was very loyal to the company, as it had been to him during good times and bad.

Tom Browne was a close friend of O’Connor. Browne was for many years the wealthier of the two friends with a net worth estimated by his old employer Anglo of €60 million at its peak. Like O’Connor he was from Limerick, and he’d been a talented Gaelic footballer in his time and was part of a team that almost beat Kerry in the early 1990s.

Back in 2004, Browne had been seen as a contender to replace Sean FitzPatrick as CEO of Anglo, but he was beaten to the job by a younger and less experienced banker called David Drumm. Browne had joined Anglo in 1990 from AIB. He had been Drumm’s boss, and he was the person Drumm thought should succeed FitzPatrick. 

Whitehead Mann, a British recruitment firm that was advising Anglo on filling the job, described Browne as a “safe pair of hands.” But it concluded the popular banker “lacks the steely edge” of many chief executives. Whitehead Mann didn’t choose Drumm either. Nonetheless, on September 22, 2004, Anglo announced that 37-year-old Drumm had got the job. According to Simon Carswell’s book on this time, Anglo Republic, Drumm had gone back with Browne to his office afterwards, and seen the Limerick man in tears, and repeatedly punching the wall. Despite the setback, Browne stayed on a for a few years. He was on considerably more than €1 million a year, but ultimately he wasn’t happy.

In early 2007, he handed in his notice, and in October 2007 he officially left the bank. Browne went out into business on his own and in partnership with a banker from AIB called John Hughes.

Browne was now rich, and he borrowed big sums from various banks to acquire investment properties in London. He invested in property in Portugal, Antigua, Dubai and Shanghai. Nearer to home, he bought property in Kerry, Limerick, Galway and Malahide, but his main home was in Foxrock.

In 2002 he opened a CFD account in Davy, and he had CFD accounts too in Bloxham and NCB. His account in IG Markets in association with Davy was used to trade regularly in the markets.

Browne’s wealth was anchored in his Anglo shares worth millions, and most of his investments were property-related. By early 2009, Anglo’s shares were worthless, and he was in trouble financially. He’d put money into investments like Taggart Holdings, a construction company that later went bust. A receiver appointed by Anglo made one of his companies sell a prime asset in London called Bishopsgate in 2012 despite his protestations that the bank should wait, crystallising big losses.

Browne was now reported to owe Anglo tens of millions of euro. He had valuable assets, but the bank wasn’t prepared to wait for them to rise in price.

Browne countersued Anglo saying that the bank had kept secret from him the extent of the danger it was in because of a multibillion CFD gamble on its shares by a tycoon called Sean Quinn, and that if he had known this he would have sold his shares in Anglo, allowing him to clear his debts to it.

A standoff ensued between the bank and Browne for years, with both threatening to sue each other. As there were various criminal cases being taken against other former Anglo bankers which related to issues Browne planned to raise in his civil case against the bank, both sides couldn’t for a long time go to court.

It was only in February 2021 that this case was settled mid-trial, and Browne accepted a judgement in the sum of €30 million being entered against him by the liquidators of his former employer.

Prior to the case being settled, Browne had given evidence of travelling to Russia and Ukraine with Quinn in July 2007 to view various properties and asking him directly about his position in Anglo. Browne was just a few months away from leaving the bank to go into business at the time, and he recalled Quinn’s response.

“He laughed at me and said in a jocular fashion, ‘Sure if I told you that I’d have to kill you,’” Browne said in his evidence.

In the interim years as he awaited this trial, Browne worked with LeBruin, a business he co-founded with Cathal Fitzgerald, another ex-Anglo banker. Fitzgerald had an MBA from Boston College, before working with Standish Mellon in the United States. He came back to Ireland in the late 1990s to work for Dermot Desmond’s IIU, before joining Anglo’s private wealth arm in 2000. LeBruin initially specialised in advising developers on their dealings with Nama and other banks post the crash. But as the years went on, they broadened their business as they helped developers build new projects, or pay off their legacy debts. LeBruin was founded in March 2008, and it had the backing of three big developers.

Two of them were developers called Joe O’Reilly and Sean Reilly, who were also members of the so-called Maple 10.

The third shareholder was Rose Castle Unlimited, a company associated with Cork developer Michael O’Flynn. The three developers, it is important to note, are not active in the day-to-day activities of LeBruin, and knew nothing of what was to unfold with Kearney. All of them are very respected business people.

In May 2012, Browne sold his shares in the business to Fitzgerald, giving his cofounder 85 per cent. Browne remained as managing director of the company. The fact Browne had his own financial battles was not seen as a negative, as so had many of LeBruin’s clients in its early days.

Browne was liked and respected by developers because he helped them get back on their feet. Now it was time to help his old friend Patrick Kearney, or at least that was the plan.

*****

Davy in disgrace: Part 2 – Heated exchanges, swearing and pressure points as a secret plan comes together

Patrick Kearney, the Belfast property developer, made his way to the Dublin office of LeBruin Private in Marine House on Friday November 14, 2014. The meeting was designed to conclude the sale of his bond in Anglo Irish Bank, and when he arrived, he was presented with all the required paperwork.

Earlier that morning, he had met with a broker from Cantor Fitzgerald. He had been a little unsettled the day before when LeBruin told him a trader from Davy was offering a lower than expected price for his bond, and he had informally asked Cantor to see if there was a higher price available. There was some urgency to the deal, however. Kearney needed money from selling the bond to pay off a debt owed to CarVal, one of the vulture funds that had feasted in Ireland in the aftermath of the financial crisis. It had bought the loan he used to buy his bond.

Tom Browne, the former Anglo banker who had co-founded LeBruin, did not know about the Cantor meeting. Instead, he focused on closing the deal he was working on. Kearney had already written a letter to Davy, marked for the attention of a trader there called Tony O’Connor, in which he had instructed the stockbroker to sell the bond on November 4, 2014. This letter, on headed notepaper, showed that Kearney had opened an account in Davy. It stated that a group of “Davy clients” were to give Kearney a cheque for €2.36 million payable to Stapleford Finance, a subsidiary of CarVal, that worked with Arrow, its service provider. In return, Arrow/CarVal would drop their charge on his bond, and the Davy bond trader O’Connor was told he should then “immediately sell” his Anglo bonds “at a price of 15 cent or better” on the euro.

Once this was done, he told O’Connor to use the first €2.36 million of any money made to “immediately” repay the Davy clients who funded the €2.36 million cheque to pay off Carval / Arrow. The letter does not say what should be done with any money made above €2.36 million, but it had been agreed in discussions between Kearney, Browne, and O’Connor, that the three men would split any profits beyond that. The entity that would write the cheque to Kearney to take control of his bonds and pay off Arrow/CarVal was called the O’Connell Partnership.

Kearney would later maintain in court filings he was not told who was behind the O’Connell Partnership, other than it was clients of Davy. Kearney says he was never told that his bonds were being bought by employees of Davy including, it would turn out, O’Connor himself. Kearney said that if he had known that, he would not have done the deal, as he wanted to sell for the highest price available to him in the market.

Browne would later claim in a letter to O’Connor dated April 20, 2015, months after the transaction closed, that Kearney was “fully aware” finance to pay off CarVal was coming from “on a personal basis a group of employees in Davy.” Browne did not respond to questions from The Currency in relation to this letter. 

In any event, the Central Bank concluded in its later investigation: “Davy took no steps to ensure that the client [Kearney] was aware that the consortium [buying his Anglo bond] was comprised of Davy employees. No written disclosure was made to that effect.”

In Marine House, Kearney was told he needed to sign the paperwork, as a meeting had been arranged nearby in Dublin 2 with James Ferris from Arrow Capital later that afternoon.

At this meeting, Arrow expected to get the €2.36 million cheque from the O’Connell Partnership. Kearney still hadn’t heard back from Cantor Fitzgerald, so he signed the relevant documents. 

O’Connor then left, leaving Browne and Kearney together. It was around then that Cantor Fitzgerald, a firm many times bigger than Davy with offices in 32 cities including Dublin, came back to Kearney. It was prepared to buy his bonds and said it could make an offer at 26 cent in the euro, probably higher. This was significantly more than the price Davy was offering, so Kearney was delighted. He told Browne, who rang O’Connor to tell him to come back to LeBruin.

O’Connor was caustic about Cantor Fitzgerald. He told Kearney to walk away from Davy if he wanted to, but he cast doubt about Cantor’s ability to execute the trade. It was a heated conversation, and Kearney in the end decided to stick with Davy.

He knew O’Connor stood to share in the profits of selling his bonds for a high price, so he trusted him. Browne had vouched for him as an expert. Cantor was knocked back. Browne and Kearney now headed to meet James Ferris in Arrow Capital’s offices. The Davy deal was back on. 

Meeting Arrow

Patrick Kearney was now in a meeting room inside Arrow Capital with James Ferris and Tom Browne. It was after two in the afternoon on November 14, 2014. Ferris and Browne knew each other as former colleagues in Anglo Irish Bank. Kearney had met with Ferris along with Browne before on September 2, 2014, to discuss clearing his debts to CarVal. He also met him again on October 14, 2014.

At this meeting, according to evidence given by Kearney in a court case after CarVal sued him, he made it clear to Ferris that he intended to sell his bonds at the “first opportunity.” He claimed Ferris was in the room when he made numerous calls discussing selling the bonds, and what price he might be able to get for them.

In his evidence, Ferris agrees he was at this meeting, but denies he was present when Kearney discussed either selling his bonds, or what price he might get for them. When considering this matter on February 16, 2018, Justice Brian McGovern said: “There is a clear conflict of fact on that issue.”

What Ferris knew or didn’t know about what Kearney planned to do with his bonds once he owned them is important, because one of the reasons Kearney was put under pressure to do the Davy deal that day was because it was felt that if CarVal knew the price of the bonds they might seek more money.

CarVal had a big bond desk in London. It could easily have asked its traders to find out the value of the Anglo bonds it had a charge on. Certainly, Arrow/Carval knew that Kearney was getting his money from Davy, so it would have been naive to think that someone was not going to sell them on later, presumably in the hope of a profit.

In any event, Kearney was now in a meeting with Ferris and Browne with the cheque to settle his debt. While he was in the room, he received a call from Ronan Reid at Cantor Fitzgerald. Reid is the head of its Irish operations and he had been in touch with Cantor’s brokers in London to get clearance to make a revised offer for Kearney’s Anglo bond. Ferris was not in the room while this conversation took place.

Reid had already had a first brief call with Kearney. On the second call, just before 3pm, Reid said he had spoken to his boss in London and was prepared to make an offer at 32 cent in the euro for Kearney’s Anglo bond. This was €4 million more than the Davy offer. It was a Friday and Reid told Kearney that he could have the money to buy the bonds by Monday.

He said he could get his back office to talk to Davy to allow the deal to go ahead that day, before closing off on Monday.

Reid told Kearney to ask Davy to ring Cantor once they had cleared the charge on his bonds, and they could then sell them on to him at 32 cent in the euro. Kearney put his phone on speaker and asked Browne to talk to Reid. Reid said he could call Barry Nangle, the head of the bond desk in Davy, and make the higher offer to him.

Browne said he was worried that CarVal might find out what was happening if there was any delay. Reid was perplexed, as he felt his deal would be easy to do and was at a much higher price.

He asked Browne directly if Davy was trying to make money for itself by buying Kearney’s bonds for the firm. Browne denied Davy was buying the bonds. (This was true, Davy wasn’t buying the bonds but, as would later emerge, a group of Davy staff were. Browne did not respond to requests for comment from The Currency to discuss what he knew about the O’Connell Partnership at the time, or what he believed Kearney knew about it at the time.)

Browne started swearing and said the deal agreed had to be done. He was worried about CarVal, and he warned Kearney he could be sued as he’d made a commitment to the O’Connell Partnership to sell them his bonds.

Reid was adamant that Kearney should take his 32 cent in the euro offer, which was a third higher than what the O’Connell Partnership were paying. He stressed he could pay that day and settle on Monday. He said that CarVal was used to this type of trading and wouldn’t object. Cantor, he said, had a good relationship with CarVal, so he was very confident a deal could be done.

The call ended with Browne saying he needed to talk to Kearney in private. Browne advised Kearney to do the Davy deal, as it was agreed. Kearney eventually agreed, but he wasn’t happy. He was under enormous pressure to refinance his property debts and was afraid to do anything that might disturb that. At around 3.30pm he signed the paperwork with Arrow/Carval.

The deal was done.

An account in Gibraltar, litigation in Dublin

As Patrick Kearney drove home to Belfast that night, he received another call from Ronan Reid at Cantor. Reid had founded Dolmen Stockbrokers before selling the firm to Cantor in 2013. On the call, Reid expressed amazement that Cantor’s offer of 32 cent in the euro was rejected. It was well known in the market, he said, that there were a few big funds actively looking to buy Anglo bonds including Elliot Partners, Anchorage and others.

Later that weekend Kearney looked at the paperwork around the deal. He saw that it said he had three months to settle with Arrow/Carval and began to wonder why there was such a rush.  

Equally, however, there were a number of clauses in the settlement agreement that said that Kearney had to keep Arrow/Carval aware of all material facts in relation to the deal and that it could revisit it up to 24 months afterwards. Kearney believed the deal he wanted was for a full and final settlement. The paperwork which he had been sent, but hadn’t read closely, said otherwise.

*****

It is hard to know why Arrow/CarVal did not value Kearney’s Anglo bonds themselves. CarVal is a multibillion-dollar business with a deep understanding of the bond markets. It knew the money to acquire Kearney’s bonds from them was coming from a Davy-related entity, and that lifting its charge would allow whoever owned the bonds to sell them to the highest bidder. It also would have known that there were question marks around being able to call in the Kearney loan, which is why the liquidators to Anglo sold it to CarVal for only about €1 million.

In any event, Arrow/Carval later sued Kearney in relation to this issue, but the case was settled before it went to full trial. It is impossible therefore to form a definitive view on this matter, as the issues at play weren’t decided upon in court. The case, if it had gone ahead, might have given LeBruin the chance to air its side of the story. The Currency has asked to talk to LeBruin for months about this transaction, but it has not responded.

Certainly, if Arrow/Carval had tried to enforce against Kearney to seize control of the bonds and sell them, it could have been difficult as they were enmeshed in illegal activities carried out by the former Anglo Irish Bank. The reason the old management of Anglo post-nationalisation and later the liquidators of Anglo had not simply taken the bonds off Kearney was they knew there were issues around the bank’s security. Anglo’s liquidators had sold the bonds so cheaply because they knew it was a bit of a legal mess.

*****

The O’Connell Partnership now had control of Kearney’s Anglo bonds for the price of €6 million. Kearney was told there was a fee of €207,000 due to be paid to Davy, but this wasn’t asked for in the end. He was told €2.36 million borrowed to pay Arrow/Carval was to be repaid to the O’Connell Partnership. This left a profit of €3 million, which Davy sent to Kearney’s company bank account in Gibraltar, where he lived at the time.

It was now November 18, and, under the original plan, Kearney was to send LeBruin and O’Connor their share of the spoils from his Gibraltar bank account to their bank accounts. 

But the more Kearney thought about it, the more he felt pushed into the deal. He couldn’t understand why his advisors hadn’t jumped to do the Cantor Fitzgerald deal as it was worth millions more. He wanted to know who was behind the O’Connell Partnership and he became suspicious about what had happened to his Anglo bonds afterwards. Kearney decided not to pay LeBruin or O’Connor their share of the profits until he got answers about what happened.

Browne was annoyed too, and after Kearney refused to pay him, he sued his former friend. Kearney, however, dug in his heels and refused to pay up. He wanted answers. He was about to open the can of worms that would cause the stockbroker to fall into ignominy and disgrace.

Pieces of an incomplete jigsaw

In March 2015, I wrote an article for The Sunday Business Post with the headline: “Davy trader in consortium that bought Anglo bond.” The story was incomplete and when I rang Tony O’Connor for comment, he said: “I have no interest in making any comment on that matter. Thank you very much.”

Browne declined to comment, as did Kearney. Davy said: “Davy cannot comment on the personal affairs of its employees.”

Rumours were circulating about what had occurred, but with all sides refusing to comment it was impossible to say much more than an Anglo bond had been sold in what appeared to be interesting circumstances.

In August 2015, it emerged that LeBruin was suing Kearney for the non-payment of fees, while Kearney was suing Davy because he felt the broker had not achieved the best price for his bond. There was even more speculation now about who had bought Kearney’s bonds, including that it was some of the most powerful people in Davy.

A colleague of mine in The Sunday Business Post, Jack Horgan-Jones, obtained a partial list of a group of Davy employees said to have bought Kearney’s Anglo bond. These were names of rich and powerful people behind something called the O’Connell Partnership. The names behind the O’Connell Partnership were put to Davy, which declined to comment. Horgan-Jones was reminded – on background by a source – that Davy was one of the most powerful financial institutions in Ireland, and it would sue to protect its good name. Ireland’s defamation laws favour the rich and powerful as awards for defamation are uncapped and decided in a costly process in the High Court that can cost €1 million a time. The newspaper didn’t publish the story. The paper was very sure of its facts, but it wasn’t enough to risk closing it down.

On June 18 2017, I wrote another story with Horgan-Jones with the headline: “Central Bank probes stockbroker Davy over Anglo bond sale.” The sub-headings to this article were: “Multimillion euro settlement made with golden circle developer” and “Central Bank examining serious allegations over bond trade.”

Things were now starting to move into the public arena. Much remained unknown.

Committees, compliance and the Central Bank

The O’Connell Partnership now had control of Patrick Kearney’s bonds. They had a face value of €27 million and were bought for €5.6 million. In the weeks before the deal was done, this partnership had come together with the specific purpose of acquiring Kearney’s bonds.

This happened after Tony O’Connor had gone to powerful figures in Davy to explain the situation facing Kearney. Who exactly hatched the plan remains a little shrouded in mystery. The Currency has heard conflicting versions of events around its genesis.

The Central Bank found that “initially” O’Connor had discussed “selling the bonds on the open market subject to achieving a minimum price” and as a result would enjoy a “profit share” between him, Kearney and LeBruin. This was what Kearney believed he had asked him to do, but then something else happened.

The Central Bank would later reveal that, rather than going to the open market, a committee of high-powered Davy executives came together to discuss what to do.

This committee included Tony Garry, Davy’s chief executive at the time, Kyran McLaughlin, its veteran deputy chair, Barry Nangle, the head of its bond desk, and Brian McKiernan, the chief executive designate of Davy. This was a highly experienced group who owned a substantial part of Davy between them.

“The committee was interested in buying the bonds,” the Central Bank said. “They formed the consortium [the Davy 16] with other staff members, including the Davy employee [O’Connor].”

“A draft legal agreement was provided to the client, whereby the bonds would be transferred to the consortium off-market at an agreed price. No disclosure was made to the client as to the identity of the consortium members. The transaction proceeded on that basis.”

The members of the committee were all multimillionaires, but the same could not be said of some of the junior members of the Davy team they invited to join them. 

The more junior members of the Davy 16 did not know the details of what had taken place with Kearney, but as their bosses were already in on the deal, they just assumed it was all above board. 

The junior members of the Davy 16 were told there was a chance to make some easy money, and to take it.

At least some of the Davy 16 did ask if the deal had been approved by Davy’s compliance team but were told this was unnecessary as the committee had approved it. For a junior member of Davy, rejecting or even questioning a deal involving a committee made up of Davy’s wealthiest luminaries could have been career damaging. Members of the committee controlled the business, determined promotions, and set their bonuses.

These junior Davy employees made only a small profit on a deal they were invited into by senior staff, and years later some of them lost their jobs when their positions were made redundant in the wake of the Central Bank fine.

The high-powered committee, however, was a different league, with personal fortunes ranging from millions to tens of millions, or even north of €100 million.

Despite their vast experience in business, the committee kept no notes of its considerations when considering the deal or how it decided it was “not necessary to consult with compliance.”

This was despite the obvious potential for conflict of interest for all involved in the transaction, especially Tony O’Connor as erstwhile business partner of Kearney, senior trader in Davy, and now member of the Davy 16. 

The Central Bank would later find that the Committee was “compromised” in its decision-making as all of its members had a personal interest in the transaction.

It also found that steps were taken by senior figures in Davy that had the effect of ensuring the deal was not picked up on by its respected compliance team, which would not have sanctioned it.

“While Davy employees are permitted to trade on their own accounts, they are required to do so on a designated system (System A) that is monitored by Davy compliance,” the Central Bank said. “An account specifically for the Transaction was opened by a member of the Committee on Davy’s system for institutional clients (System B), a system that the committee knew or ought to have known was not monitored by Davy compliance.”

Davy then transferred the bonds internally from Kearney to the Davy 16’s accounts on System B, which was not monitored by compliance.

The Central Bank said Davy used its own funds to buy Kearney’s bonds. Then later that day, the committee repaid their employer this money. Three weeks later, some of the Davy 16 sold a “large tranche of the bonds to a fund manager”.

“In the weeks prior to that sale, certain consortium members engaged with interested buyers to provide a Davy ‘house view’ on the value of the bonds,” the Central Bank said. “In so doing, the consortium members drew no distinction between whether they were acting in a professional capacity (i.e. as broker) or personal capacity, as the seller of the bonds.” 

“The Central Bank’s investigation found this to be a particularly serious example of the many potential conflicts of interest that can arise between a firm, its clients and its employees, in the course of one transaction.”

What the Central Bank does not say is that the “large tranche” was sold at a profit of millions, which went to members of the consortium within 21 days of the deal.

Notably, the Central Bank does not say that all of Kearney’s Anglo bonds were sold so quickly.

The Currency understands that a number of Davy staff may have held on to some of the Anglo bonds, making them millions more when they were eventually paid out in full by the state. Money was certainly made, but not that much of it reached Patrick Kearney.

*****

Davy in disgrace: Part 3 – Denial, indifference and the ten days that shook Davy to its very core

As the Central Bank prepared to publish the result of its investigation into Davy’s role in the Anglo Irish Bank bond transaction, the mood was one of relief. The press strategy had been agreed. The relevant parties had been briefed. Journalists had been told to expect an announcement but had not been given any detail. Aides and regulators expected the import of the investigation, allied to a €4.1 million fine against Davy, to generate some traction, but most assumed it would fall off the news agenda within a day.

The investigation had been a long time in gestation, almost too long. Four months after the broker’s role in the transaction first emerged publicly in early 2015, Davy had contacted the Central Bank to provide an explanation. But, if the Central Bank thought the broker was going to be open and frank, it was sorely mistaken.

The Central Bank would later reveal that Davy “provided vague and misleading details” and “wilfully withheld information” that would have disclosed the full extent of the wrongdoing that was known to Davy at the time.

The regulator had been forced to write to Davy identifying specific areas of concern and seeking additional information as it tried to determine what had occurred. In a letter of response, Davy once again failed to disclose the full extent of the wrongdoing. It was only after the commencement of the investigation that the Central Bank realised the extent of the inaccurate information provided.

Davy, the Central bank would discover, had presented information in such a way as to make the involvement of certain individuals appear more central to the transaction than in fact was the case.

Now, on March 2, the Central Bank was finally ready to reveal what had actually occurred. It made for stark and grim reading, with the extensive investigation concluding that Davy “fell well below the standard required in meeting its regulatory obligations in relation to conflicts of interest and personal account dealing”.

The enforcement action by the Central Bank found that a group of 16 employees, including a “group of senior executives”, prioritised making a “personal financial gain over ensuring that it was complying with its regulatory obligations” to a Davy client.

The Central Bank also criticised Davy for its “lack of candour” and for failing to “disclose the full extent of the wrongdoing” when first discussing the matter with it after I first reported on the issue while working for The Sunday Business Post in 2015.

The Central Bank found that Davy breached MiFID regulations by failing to take all reasonable steps to identify whether a conflict of interest had arisen, and that the stockbroker was “not operating in a conflicts of interest aware environment”.

The regulator added: “Whilst Davy did have a conflicts of interest policy, employees were permitted to decide whether transactions in which they had an interest could give rise to a conflict of interest on a case-by-case basis, without independent oversight and without a requirement to keep a record of steps taken.

“In deciding at the outset whether the transaction was permissible, Davy’s primary focus should have been to identify whether any conflict of interest arose between the consortium (the group of Davy employees) and the client.”

The regulator was not permitted to name individual names. Within hours however, it emerged one of the so-called Davy 16 was Brian McKiernan, the chief executive of Davy.

*****

Denial and indifference

If the mood within the Central Bank was one of relief at completing a long and difficult investigation, the feeling within Davy in the build up to release of the investigation was one of denial and indifference. The broker knew that the report was coming, and it knew what it said. The Central Bank had offered Davy the chance to issue a statement alongside its findings. Any statement would have had to be approved by the Central Bank, and it was the perfect opportunity for Davy to express contrition and explain what actions it intended to take in response.

Davy decided not to take this opportunity. Instead, Davy’s board, headed by John Corrigan, the former head of the state’s debt agency, the NTMA, had spent time discussing litigating the Central Bank in court to try and overturn its findings. Its advice was any challenge would be difficult, and it was likely to lose. Plus, it would also draw more attention to just what had happened.

So, the board of Davy decided to keep its head down. The most senior figures within Davy, its chief executive Brian McKiernan and its deputy chairman Kryan McLaughlin, were nonchalant. Both had been in on the deal. Both had personally profited. And both were significant shareholders.

Corrigan, the former head of the NTMA, had chaired Davy since April 2015.  He was not there when the Anglo bond transaction occurred, but he was in situ in the year afterwards. He was the chair when Davy discussed what its response would be to the Central Bank as its investigation deepened and came to its conclusion.

Corrigan had experienced board members around him, who also weren’t on the board at the time of the Anglo bond transaction. Ronan Murphy, a former senior partner in PwC, became a non-executive director in March 2016, while Ronan Moloney, a former chairman of McCann FitzGerald, joined the board of Davy in April 2015. Patrice McDonald, a third independent director, joined Davy in February 2016. She is also a non-executive director of TD Bank and a new British bank called Allica.

Davy wasn’t short of experienced business directors.

In October 2018, Davy had appointed former AIB chief executive Bernard Byrne as its deputy chief executive. A director of Davy and head of its capital markets division, Byrne was more than capable of stepping in to replace Brian McKiernan and was the heir apparent, but the board of Davy did not consider this warranted.

Kryan McLaughlin turned 76 in May 2020. He could have quietly retired in the months before the Central Bank’s censure, but he wasn’t going anywhere either. Nor was he asked to.

Instead, the plan by Davy’s board was to try to weather the Central Bank’s decision by ignoring it.

The senior staff engaged with an experienced media adviser to formulate a plan on how to respond. Various options were looked at, but in the end, Davy took the decision to make no comment at all.

Instead, it drafted up a statement that it would issue to staff, knowing that as it was being sent to hundreds of people it was certain to leak to the media.

McKiernan, Corrigan and McLaughlin thought the story would pass by quickly. Despite the damning findings, and the fact that so many of those involved in the scandal still held senior positions, there was no talk of resignations. This was not Davy’s first scandal, and it stood by the playbook it had used in previous crises – say little, privately brief a handpicked number of journalists and wait for the news cycle to pass.

The trouble, however, was that this playbook belonged to a different generation; an era when a large number of people did not understand the nuances of finance and when the news cycle was not 24/7.

So, when the Central Bank issued its damning finding, Davy was shambolically unprepared.

They were also unlucky. Unknown to Davy, that very day the sale of rival Goodbody to AIB was due to be announced, bringing the issue of bonuses back into the conversation. The state expected flak in relation to this deal, and then out of nowhere came the Central Bank’s announcement at 1pm about Davy.

Questions, no answers

Within hours, Paschal Donohoe, the finance minister, was asked about it at a press event. Donohoe was clearly not impressed: “The behaviour that has been detailed by the Central Bank of Ireland in relation to Davy falls gravely short of the standards of behaviour that are expected of leaders in positions of financial responsibility.”

Davy, however, stood by its strategy of public silence, and issued its statement to staff unaltered. Incredibly, McKiernan and not Corrigan signed this email. McKiernan was one of the Davy 16, making its content even more inflammatory to regulators in the Central Bank. 

In it, McKiernan expressed Davy’s deep regret and said the firm was “sorry for the shortcomings that gave rise to the findings which could not recur today”.

The statement also carried the following paragraph: “While there are no findings of actual conflict of interest or customer loss, there were significant shortcomings in how the transaction was conducted, particularly in the context of the policies and controls relating to the management of potential conflicts of interest.”

The Central Bank had not seen the statement prior to its release to staff. But when regulators did see it after it appeared in the media, they were both amazed and furious. McKiernan had told staff explicitly that there were “no findings of actual conflict of interest or customer loss”. This did not reflect the spirit of its findings or its conclusions. “It was a complete fiction,” one senior official said.

The bank contacted Davy, who initially tried to argue the meaning of the words. With the Central Bank threatening to formally contradict the Davy statement, the broker relented and reissued an altered statement to staff that took out the line about no conflicts or customer loss.

However, the botched statement had enraged both the regulator and also the Department of Finance. Within both organisations, there was also a growing alarm that the broker was not issuing a public statement. Davy privately briefed that a statement was against the terms of its settlement with the bank. This was not the case. Davy had chosen not to issue a statement, because it would have had to be approved by the Central Bank.

Paschal Donohoe was due to appear on RTÉ radio the following morning. If a statement was not forthcoming, Donohoe was going to call for one. 

Davy was losing control of the narrative. The playbook had failed.

Corrigan’s old stomping ground: plays hardball

The National Treasury Management Agency had been established in 1990 to manage the state’s debt and borrow money on its behalf. It operated outside of the public sector pay scales and had a reputation for efficiency. Michael Somers was its first chief executive. John Corrigan was its second.

Shortly after he left the NTMA, Corrigan took the chair of Davy. Both organisations knew each other intimately. Davy had long been a primary dealer in Irish government debt, a highly prestigious position that Davy used to open doors to other blue-chip clients. Corrigan had known for years about the Central Bank’s investigation, and it had been discussed regularly at board level.

When the Central Bank’s findings were released, the NTMA, led by Conor O’Kelly, a former stockbroker with NCB, waited for Davy to make a formal response. And it waited. However, it knew it would have to make a statement after Donohoe, during his Morning Ireland interview, was specifically asked about Davy’s ongoing relationship with the NTMA.

“They make their decisions in relation to who they deal with,” Donohoe said, referring to the NTMA. “I’ve no doubt at all that they will monitor how that matter develops.”

The NTMA quickly responded: “The NTMA notes the very serious findings by the Central Bank in this matter,” a spokesman said. “The NTMA is monitoring the situation closely and awaits the company’s response to the Central Bank findings.”

The obvious thing for Davy to do was to step up and announce it was voluntarily stepping back from being a primary broker on the day the Central Bank fined it, but it didn’t.

Instead, with both the minister and the NTMA demanding a statement, Davy was forced to rewrite its playbook. A statement was quickly issued by the Davy board, saying it had commenced a detailed review of the regulator’s findings and will take “appropriate action”.

“Davy deeply regrets the shortcomings that emerged from the Central Bank of Ireland’s investigation and apologises unreservedly and unequivocally that these failures occurred, and that Davy failed to adhere to the high standards expected of the firm both internally and externally,” the firm said, adding that it is “satisfied” that the issues that occurred seven years ago “could not recur.”

The statement did not sit well in the Department of Finance, the NTMA or the Central Bank. Policymakers and politicians felt the broker needed to be more contrite, and more forthcoming. “They are in denial,” one senior government figure told The Currency at the time. Another said: “They think they can ride it out. They can’t.”

John Corrigan, meanwhile, had still said nothing. When he did break his silence, it made a bad situation worse. “I am not going to discuss this as it is a private matter,” he told me on March 4. In relation to his role as chairman of Davy, and his responsibility to all of its shareholders and stakeholders, he said: “I am perfectly aware of my responsibilities.”

The Davy story had now escaped the business pages. RTÉ was covering it extensively. The opposition was criticising the government. Miriam Lord wrote an article with the headline: ‘The Bisto Kids get a taste of their own Davy gravy.” Fintan O’Toole described Davy as “ghouls, preying on the remains of shattered lives.”

Davy had tried to make it an anonymous story, from long ago in its past. But it was becoming personal. McKiernan was in on the deal. Now, it had emerged that McLaughlin had benefited also. So too Barry Nangle, the head of its bond desk. The deal smacked of a golden circle, and Davy’s lack of contrition was antagonising the general public, the political establishment and specifically the NTMA.

Resignations are not enough

In addition to public servants including the secretary-general of the Department of Finance and the secretary-general of the Department of Public Expenditure, the board of the NTMA includes leading lights from Irish corporate life. Maeve Carton, a former finance director of CRH is the chair, while Aon executive Rachel Ingle, former Hewlett Packard Enterprise Ireland boss Martin Murphy and academic Brian O’Kelly are independent non-executive board members.

As the crisis intensified, the board began to think of the reputational damage to the NTMA by continuing its association with Davy. They were not ready to cut ties but wanted it to explain itself. The NTMA was conscious that Davy was a private business, and other investment banks on its panel of brokers had been fined by their local regulators for much more serious offences. Davy’s appalling mishandling of the fine, however, made it impossible to ignore.

So, on Friday March 5, the NTMA wrote to the board of Davy accusing it of a breach of trust and outlining its concern about the culture, behaviour, and values within Ireland’s biggest stockbroker. In its letter, the NTMA asked the Davy board to respond to it in writing outlining what it plans to do to address its concerns and reform its business.

This was a turning point. Davy, and its chair John Corrigan, knew the controversy was not abating. Within Davy, senior executives discussed how the issue had played out. They had not expected such a public rebuke from Donohoe. They had managed to successfully brief some journalists, but they were furious at the extensive coverage of the scandal in The Currency and by Joe Brennan in The Irish Times. 

Now, though, Davy’s board acknowledged that something finally had to give. After trying and failing to contain the situation, and faced with an ultimatum from the NTMA, it was time for resignations. On Saturday, March 6, The Currency reported that McKiernan, Nangle and McLaughlin were poised to resign. An hour later, the broker issued a public statement confirming the story, stating that all three men had offered to step down following the bond scandal.

“In accepting their resignations, I acknowledge their substantial contribution to the development of the company over many years,” John Corrigan said. “As we reflect on the Central Bank investigation our priority now is to restore trust in the integrity and robustness of our control environment and culture, and to ensure we provide our clients with the standard of service and protection that I know our people are committed to.”

In his own statement, McKiernan apologised for his role in the bond deal and expressed his regret. McLaughlin, however, was in no mood for apologies. “This morning I spoke with the Chairman of J+E Davy to confirm that I am bringing forward my planned full retirement from the company next year and am now retiring from my role as non-executive deputy chairman of the company with immediate effect,” he said in a statement that made no reference to the bond trade.

Corrigan’s statement, in which he pointed to the substantial contribution of the trio, did not go down well in official circles. Davy had good leaver, bad leaver provisions in its staff contracts, and Corrigan’s statement appeared to indicate the trio were good leavers. Davy declined to comment either way.

The offshore power channel, and a bidder waiting in the wings

As the crisis was unfolding, Thomas Hubert began to unlock the byzantine corporate structure behind Davy. It was an arduous task and involved entities in Ireland, the Isle of Man and Gibraltar. The conclusion of Thomas’s investigation was clear – McLaughlin and McKiernan may have resigned from the company, but through a series of holding companies and hierarchical boards, they still retained effective control of the brokerage and retained a massive shareholding in it.

The article, published late on March 8, was the first time that many policymakers and even regulators understood the nature of how Davy was controlled. It was now obvious that McLaughlin and McKiernan would remain highly influential within the organisation. And, given their stakes, it was also obvious that they could not just be bought out. The money involved was too large for other executives within the broker to stump up.

Picking through the data, Thomas revealed the role of a company called White Note, located in the Isle of Man. This was the power channel, running through other vehicles including Amber Note and Ailmount Investments, two companies where McKiernan, McLaughlin, and Barry Nangle hold board seats. There had been no mention of this responsibility in the resignation statements.

Davy had hoped that the resignations from the company would stem the haemorrhage. Now, no one was sure what the resignations actually meant or if the high-ranking trio would still retain power. Within the government and the Central Bank, there was a growing feeling that the only way the broker could be salvaged was through a sale.

And they were not the only ones with that idea. Bank of Ireland, led by Francesca McDonagh, contacted Davy on March 8 to say it would be interested in acquiring the brokerage if it was for sale. The approach made its way back to the government as it would require its approval due the state’s stake in the bank. It was an obvious move for a bank looking to diversify its income streams. And it came not long after the state had approved AIB’s purchase of rival stockbroker Goodbody, a deal that cleared up many of the issues that could have impeded Bank of Ireland’s approach such as bonuses and pay. AIB had provided a template. Bank of Ireland wanted to mirror it.

The Department of Finance let it be known that it was in favour of such a move. Davy board members and significant shareholders held a series of calls throughout March 9, followed by a number of early morning calls on March 10. The crisis was not abating. Attention was now moving to Davy’s blue-chip corporate clients, including Bank of Ireland, CRH, Glanbia, Paddy Power, and Dalata. With the broker so publicly shorn of the legitimacy and prestige that comes with raising debt on behalf of the Irish state, its portfolio of 32 companies listed in Dublin and London would have to make a decision about whether to stick with Davy or abandon it.

The resignations had not worked. Nor had the apology. Amid genuine fears of an exodus of clients and  ambitious staff, and with the Davy brand becoming more toxic by the day, a decision was taken to sell the broker.

In mid-morning on March 10, The Currency reported that Davy was to be put up for sale and that Bank of Ireland was waiting in the wings. The company had intended to announce the decision that day but postponed the move for a further day. The decision had been taken, but it was struggling to find someone to handle the sales process. The company needed a significant finance house to manage the process, preferably from outside of Dublin, but one that would also have no interest in acquiring Davy. Finally, Rothchild agreed to come on board.

On March 11, at 8.20 pm in the evening, a statement was released by Davy’s external public relations firm Murray Group. It was short and to the point: “The Board of J&E Davy has decided to pursue a sale of the Group.  Rothschild & Co has been appointed as financial adviser to manage the process.”

And just like that, Ireland’s biggest and most powerful stockbroker was put on the market. A news cycle the company had expected to last just hours had turned into a ten-day scandal. The Davy playbook had failed spectacularly. Within Davy there was an intense feeling of being let down by its board and leadership, that went much deeper than merely the Anglo bond transaction.

But a bigger issue was emerging. The board of Davy thought the resignations would appease the NTMA. But they were wrong. The agency had been looking for an explanation of what occurred, which they had not received.

The broker had first hoped three departures and some rudimentary language about shifting cultural values would do the trick. It did not. The following Tuesday, almost a week after the report had been published, the board of the NTMA took the decision to cut ties with the broker. 

The formal statement from the NTMA read:

“The Board of the National Treasury Management Agency (NTMA) has withdrawn J&E Davy’s authority to act as Primary Dealer in Irish Government bonds with immediate effect.

“The Board reached its 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. In this context, the NTMA believes that the behaviour described in the Central Bank findings falls substantially short of the standards expected from market counterparties, peers, and colleagues in the bond market and is potentially damaging to Ireland’s reputation as a sovereign issuer.”

The last line is particularly damaging and caused significant consternation within Davy’s Dublin 2 headquarters. As Ian Kehoe wrote at the time: “In essence, this is now the Irish state’s view of Ireland’s primary stockbroker. It will appear every time someone searches for Davy on the internet or asks about its relationship with the state. This is the real problem – not the end of its position as a primary dealer which generates relatively little income. The real devastating blow is reputational.”

*****

On March 16, Davy appointed Alvarez & Marsal, the global consultancy firm, to review matters arising from the Central Bank settlement. “The work will be led by Paul Sharma, Managing Director with Alvarez & Marsal Financial Services in London and Head of the Regulatory practice, and will be conducted by a London-based team. Alvarez & Marsal has had no known prior connection with Davy,” Davy said.

“The review will include a forensic assessment, the scope of which will be determined by Alvarez & Marsal, of relevant staff trading from 2014 to 2021 and of any other relevant activity. It will also assess the adequacy of enhanced compliance, controls and governance designed to prevent conflicts of interest. The Board is committed to sharing the findings of the independent review.”

The review is ongoing and is not looking into any matters prior to 2014 when new internal controls were put in place. Alvarez & Marsal is best known in Ireland for ploughing €61 million into Hog’s Head Golf Club, a private golf club in Co Kerry. Davy has declined to reveal its exact terms of reference.

*****

In Belfast, a property developer makes his move

As the scandal raged, Patrick Kearney, the Belfast property developer on the wrong side of the Anglo bond deal, watched on with interest. In 2015, a year after suing Davy, he had reached a settlement with the broker. The settlement had been agreed in mid-December 2015 with Tony Garry, the then former chief executive of Davy, and Barry Nangle, the head of the stockbroker’s bond desk.

But the more information was emerging as a result of the Central Bank’s investigation, the more frustrated Kearney became. During the talks, according to legal documents filed by Kearney, Garry and Nangle assured Kearney that they did not “own, control or have any interest” in the O’Connell Partnership and that it was instead just a client of the stockbroker. These assurances had been given to him personally, and to his representative Alan Mains, a former senior police officer in the North.

Kearney had taken them at their word and agreed to the settlement. Now, it was emerging that both men – along with 14 other Davy staff – had been in on the deal. Armed with this new information, Kearney was ready to litigate once more.

On April 28, Kearney sued Davy again, as well as all members of the Davy 16. His lawyers Clark Hill state Kearney’s position is that he received “fraudulent assurances and representations” from Davy during his settlement talks about who was on the other side of the deal.

Kearney’s position was that the settlement he had reached with Davy was therefore procured by “the deceit and fraudulent enterprise and concealment of Davy and the O’Connell Partnership.”

Davy has said it intends to defend this case which it describes as “opportunistic.”

It has submitted a letter from Tom Browne of LeBruin to Tony O’Connor dated April 20, 2015, as part of its defence.

This letter states that Davy considered doing the deal, but it turned it down as it was “not in the business” of providing loans to clients.

“Following this decision you arranged the finance for the debt settlement deal on a personal basis through a group of employees in Davy (O’Connell Partnership) and that Paddy Kearney was fully aware of this and a subsequent agreement was signed,” the letter states.

Browne states that Davy’s Tony O’Connor twice offered to walk away from the deal in favour of “another party that Paddy Kearney was independently talking to. On both occasions Paddy refused your offer to walk away.”

“Davy’s involvement was facilitating LeBruin acting for Paddy Kearney in completing this deal which involved opening an account, assisting in the sale of the bonds, and distribution of sale proceeds of same.”

The first Kearney’s legal team heard of the letter’s existence was only when it was being presented by Davy to the High Court.

The Currency wrote to Browne asking him about this letter, which he signed. Among the questions asked was whether LeBruin had signed a letter of engagement with his client Kearney, and if it didn’t, why not. Browne did not respond.

The Currency also asked him what he meant by Kearney being “fully aware” of the involvement of the O’Connell Partnership, and did Browne or anyone else tell Kearney, for example, that O’Connor was a member of the group of Davy employees buying his bonds? Browne did not respond.

The Central Bank found that Davy “took no steps to ensure that the client was aware that the consortium was comprised of Davy employees. No written disclosure was made to that effect.” The Currency asked Browne to explain what he knew about the deal, what steps he took to explain to Kearney what was going on, and whether he put anything to him in writing. Browne did not respond.

The Currency asked Browne if there was anything he would change about how the deal was done if he was advising Kearney again? He did not respond.

Finally, The Currency, asked Browne, if his letter was correct, did he believe that the Central Bank was wrong to fine Davy and make such damning findings against it? He again did not respond.

“Hook, line and sinker”

Tony O’Connor retired from Davy in 2018 after 23 years. I reached out to him for a comment, and he replied one day later on June 9, 2021. In his response, he stated “Your unsolicited e-mail refers. My initial reaction was to delete it. Instead I am taking this opportunity to put you on notice that I am reserving my position in relation to a defamation action against you and The Currency.”

He added: “I understand that I have 1 year from the date of publication within which to initiate such action. It seems fairly clear to me and indeed others that you have accepted Kearneys version of events as relayed to you without any real in-depth investigation or analysis or any semblance of objective commentary.

“In short it appears to me Kearney has taken you in, hook, line and sinker. In fact at this stage if you were a fish he would probably be tired of throwing you back in the water.

“Your various articles and specifically the article of March 11 is full of seriously damaging falsehoods. Your articles have caused serious damage to my reputation and ability to earn a living.

“You will note that as is my right I have not commented yet on this matter nor have I been asked to defend any action up to now by Kearney.

“When the proper opportunity arises I will give the facts of what happened as distinct from the ‘story’ you have chosen to write. In the meantime you keep taking the bait.”

I wrote back to O’Connor stating both I and The Currency stood by the coverage, and it was based on the findings of an in-depth investigation by the Central Bank. In relation to his complaint about the March 11 article, I said O’Connor had been offered the opportunity to comment on his emails to Kearney prior to publication, but he had not responded. I once again offered O’Connor a right of reply, which he did not respond to.

The Currency then asked O’Connor did he ever tell Kearney who was in the O’Connell Partnership, and did he inform him that he was among the buyers of his bonds. We also asked him if he regretted that Davy’s compliance team had not reviewed the transaction prior to it occurring.

According to his email to me, O’Connor claims to have “the facts” about what occurred. The Currency asked him if the opportunity to give “the facts” was not there during the years of the Central Bank investigation. In addition, why had the regulator fined Davy €4.1 million, and made a series of findings against it? O’Connor declined to respond.

*****

The vast majority of Davy employees, both past and present, knew nothing of what occurred. Yet they all now face an uncertain future.

The junior members of the Davy 16, who made small amounts of money on the Anglo bond trade, have been devastated by the fallout from the scandal. They have said privately they would never have done the deal if they had known the full circumstances of it. 

They assumed – wrongly – that because so many of Davy’s senior team was in on the transaction, then it had to be above board. They have paid a price for this assumption, with some of them losing their jobs in Davy when it closed its bond desk.

This had led to acrimony within the group with three former Davy employees, Barry Murphy, Eamonn Reilly and Stephen Lyons, appointing their own legal counsel to represent them. They have denied in court they were ever members of the O’Connell Partnership.

The scandal may have subsided. But the saga continues. Tony Garry, Kyran McLaughlin and Brian McKiernan were already wealthy before they bought Patrick Kearney’s Anglo bonds. They will become wealthier still when Davy is sold.