Bank of Ireland Agrees to Buy Scandal-Hit Irish Broker Davy

(Bloomberg) -- Bank of Ireland Group Plc agreed to buy Dublin-based securities firm Davy, four months after the scandal-hit firm put itself up for sale.

The Irish bank will acquire Davy for an enterprise value of 440 million euros ($518 million), Bank of Ireland said Thursday. Three quarters will be paid upon completion -- expected in 2022 -- and the balance will be paid two years after completion subject to Davy shareholders meeting a number of criteria, it said.

Further payments of as much as 40 million euros will be payable from 2025 depending on future performance, the lender said.

“We see a continuation of the Davy brand and structure, under the Bank of Ireland umbrella,” Bank of Ireland Chief Executive Officer Francesca McDonagh said.

Davy sought a buyer in March after a cadre of top executives resigned amid a central bank investigation into their conduct. The case involved a consortium of employees, including some of its top management, buying bonds from a client in a personal capacity, without the customer knowing they were the buyers.

The broker was fined 4 million euros, and Prime Minister Micheal Martin branded the executives’ behavior a “disgrace.” The Irish debt office stripped the firm of its status as a primary dealer in the nation’s government bonds, while Davy hired Alvarez & Marsal Inc. to review its business.

That review, published on Thursday, noted “high levels of staff dealing” from October 2014 to December 2020. Still, it did not find any instances that “resulted in crystallized harm or detriment to Davy’s clients,” beyond the case that prompted the fine.

Excess Cash

Separately, IQ EQ Group Holdings Sarl said it is to buy Davy’s Global Fund Management unit, which employs 83 people. That deal is expected to close by the end of the year. Davy also sold its interest in Rize ETF to AssetCo for 16.5 million pounds. Bank of Ireland will pay for any excess cash derived from those sales, currently estimated to be about 125 million euros.

While Bank of Ireland is effectively banned from paying bonuses as a result of a state bailout a decade ago, the firm has approval from the finance ministry to maintain current compensation arrangements including variable pay at Davy, a bank spokesman said in an email. As many as 80 Bank of Ireland staff will transfer to Davy in the first year after the deal closes, he added.

Bank of Ireland takes over the broker 15 years after selling it back to management. It will boost the bank’s fee-based business at a time when low interest rates have strangled retail lenders’ traditional income streams. Davy employs more than 800 people and manages more than 16 billion euros of client assets.

Davy had an adjusted profit of 32.8 million euros last year, with adjusted gross assets of 756.3 million euros, according to the statement.

The deal is the latest corporate activity involving Irish banks after years of retrenchment. Bank of Ireland is also in talks to buy KBC Group NV’s Irish performing loans, while AIB Group Plc has agreed terms to buy NatWest Group Plc’s Ulster Bank Ireland commercial loans, as well as Goodbody Stockbrokers.

Read More: After Years of Stagnation, Irish Bank Stocks Are Roaring Back

Bank of Ireland was advised by IBI Corporate Finance and Credit Suisse International.

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