Davy staff have been warned that the firm’s bonus pot for this year will decline sharply as its capital markets division is on track to swing into a loss, according to sources.
The performance of the division has been communicated to some of Davy’s 800 staff in recent weeks.
It is understood that the capital markets unit is on track to post a pretax loss of more than €10 million, compared to a profit of about €20 million last year.
This area of the business comprises an institutional business overseeing equities research and trading as well as corporate finance and broking operations.
The capital markets unit has been affected by a slump in equity trading fees in declining markets as well as a dearth of initial public offerings (IPOs), follow-on fundraisings and mergers and acquisitions, as corporations and investors globally fret about the deteriorating outlook for the world economy.
However, sources said that the overall Davy group, led by chief executive Bernard Byrne, which was bought by Bank of Ireland in June in a €427 million deal, remains on track to post a full-year profit.
That is thanks to its wealth management unit, which continued to see net inflows of fresh cash being invested by clients during the year, even as portfolio sizes were hit by a drop in the value of equities and bonds globally.
Bank of Ireland said in August that Davy made an underlying profit of €12 million during the first half of the year, even though the bank had only begun to benefit from income from the firm from the start of June. The bank said the result reflected income of about €86 million and costs of €74 million for the six-month period at Davy.
Bank of Ireland said at the time that it expected Davy to post a similar profit for the second half of 2022.
Davy’s then head of capital markets, John Lydon, quit the State’s largest stockbroker in September to join CRH as director of group development. He was succeeded by Damien Roddy.
Goodbody Stockbrokers, which was bought by AIB last year for €138 million and is led by chief executive Martin Tormey, told staff last month that it is on track to make a loss this year. Goodbody employs about 300 staff.
The Minister for Finance, Paschal Donohoe, gave Bank of Ireland and AIB the green light last year to proceed with respective takeovers of Davy and Goodbody on the basis that variable pay structures in both brokerages would be unaffected, even as bonuses were banned at the bailed-out banks.
The Minister moved last week to allow for a return of bonuses of as much as €20,000 across the banks, though it is expected that it will be 2024 at the earliest before staff in the lenders will begin to benefit from this.
