Vol. 441 No. 7
1 Mr. Yates asked the Minister for Finance if he has satisfied himself with the outcome of the inquiry by the London Stock Exchange authorities in relation to the sale of Greencore shares in 1993; if there will be any explanation as to which events were detrimental to the Stock Exchange; and the replies he has received to correspondence seeking further information on the matter.
I would like to give a very brief resumé of the events that gave rise to the Stock Exchange investigation into the circumstances surrounding the placing by Davy Stockbrokers of 25.4 million Greencore shares on my behalf.
When the sale of the State's residual shareholding in Greencore to ADM fell through in late April 1994 it was decided that the shares should be disposed of by way of a placing with institutions. Davy Stockbrokers undertook to place the shares on Friday 30 April 1993 for a fee of £175,000, and on the advice of Davy's, Warburg's of London were retained as a backstop arrangement to take up to ten million shares, if the need arose, for a fee of £550,000. This sum represented 2 per cent of the value of the ten million share and would compare with standard underwriting fees for this type of transaction.
Davy's advised my Department sometime after noon on 30 April that an announcement could be made that the placing was successful on the basis that more than 17.5 million shares had been placed with institutions and that the arrangement with Warburg's was there as a failsafe. Both I and the company issued statements to the effect that the placing was successful.
On Tuesday evening, 4 May Davy's indicated to my Department that certain technical difficulties had arisen with the placing. On Wednesday, 5 May I was informed that Davy's had taken a decision on Friday, 30 April that it was inappropriate for Warburg's to be seen to hold a large number of shares and placed the shares instead with companies connected with Davy's. They also disclosed that they had an agreement with Warburg's to share the downside risk on a 50-50 basis.
On Thursday, 6 May my Department received a copy of the Davy summary of events prepared for the Stock Exchange which confirmed the fee sharing arrangement and which also disclosed that as Davy's did not wish to place a major holding of Greencore shares with Warburg's, the agreement with Warburg's had been revised to reflect their reduced participation in the placing. Under the revised agreement the fee payable to Warburg's was reduced to £100,000.
On Friday, 7 May Davy's contacted all purchasers of the shares and placed all but 9.6 million which were taken up, by prior agreement, by the Investment Bank of Ireland. As a result I disposed of my entire shareholding at the agreed price of £2.75 per share and the proceeds of the sale were lodged with the Exchequer on the date originally agreed. The fees of £725,000 were waived.
As a result of the failed placing I asked the Attorney General to investigate the factual circumstances surrounding the placing and to report to me on any apparent breaches of the law arising from the facts established. Because of the nature of the inquiry and the role of the Attorney General as the chief law officer of the State the report is privileged. The report cannot and will not, therefore, be published.
Nevertheless, in the interest of keeping this House informed, as I have done throughout this issue, I can confirm that in general terms it arrived at the same conclusions as the Stock Exchange report to which I will refer later. The report concluded that there was no evidence of a breach of the criminal law on the basis of the information available to the Attorney General. The report also concluded that the State had suffered no loss as a result of the unsatisfactory placing of 30 April. In the circumstances, as the State did not sustain a financial loss from the placing I am advised that legal proceedings are not warranted.
The London Stock Exchange announced on 16 March that disciplinary proceedings concerning the placing of the Irish Government shares in Greencore by Davy's had been concluded. A press statement in the following terms was agreed by Davy's and the Stock Exchange:
The London Stock Exchange announces that disciplinary proceedings concerning the placing of the Irish Government shares in Greencore by J & E Davy Stockbrokers have been concluded.
The Disciplinary Committee of the Exchange has found that Davy's conduct was, in some respects, detrimental to have interests of the Stock Exchange, and Davy Stockbrokers have been reprimanded and fined £150,000.
On the basis of the information available to me I have no reason to disagree with the finding of the disciplinary committee of the exchange.
Under the rules of the exchange no further statement can be made by that body. However, I, as Minister for Finance, felt that I required additional information on the disciplinary process. I needed this additional information because it may have implications for the Stock Exchange Bill which is now nearing completion and also because it may be relevant to the engagement of Davy's on Government work on future occasions.
I wrote to Davy Stockbrokers on 21 March asking them to disclose the grounds on which they were found to have acted in a manner detrimental to the interests of the Stock Exchange and to specify the charges made against them. I have received on a confidential basis a response from Davy's which indicated that the charge related to non-disclosures of arrangements with Warburg's and the provision of misleading information to the effect that the placing of shares had been completed.
Specifically the issues that Davy's were asked to answer fell into three parts. Part one dealt with the non-disclosure to the Department of Finance of the original fee splitting arrangements and the revised splitting arrangement with Warburg. Part two related to the announcements that the placing had been completed made shortly after mid-day on the day of the placing by the Greencore press release and by the press release issued by the Minister for Finance which the Stock Exchange alleged were misleading based on the information given by Davy's. This part also related to statements made to Davy's to two of their clients shortly after mid-day on the day of the placing, also the effect that the placing was complete. Part three related to the failure of Davy's to correct the public announcements and the statements made to two clients. I repeat that the information which I have received from Davy's was provided on a confidential basis and, accordingly, I do not propose to publish or to elaborate further on the contents of its letter.
The disciplinary committee concluded that it was apparent to it from the evidence given at the hearing that the events giving rise to the charges were not a deliberate and pre-determined course of action by Davy's but a result of the desire to complete the transaction efficiently early in the morning. I do not, therefore, see the need for any further action on my part. I consider the matter closed.
Accordingly, the matter is closed with regard to the Greencore placing but it may have some implications for the Stock Exchange Bill that will be introduced shortly. I accept that, as the rules of the exchange stand at the moment, I do not have the right to demand information, but I do not believe that any institution should be able to keep vital information from the Irish public. I will look into the Stock Exchange Bill, currently being drafted, to see that this situation will not arise in future. There is, clearly, a need to take account of the public policy requirement of Stock Exchange investigations. There is also a need, however, to maintain a judicious balance between the publication of investigations and the public interest on the one hand the efficient operation of the market and commercial confidentiality on the other.
It is entirely proper that I should reflect on the constraints that the existing rules of the International Stock Exchange had on the matter of disclosure regarding this rule breach, but any desire for a higher level of disclosure under the new rules cannot change the validity of the existing rules.
Davy Stockbrokers was fined £150,000, a little more than a parking fine. We have been told that its conduct in this matter was detrimental to the interests of the Stock Exchange. What did Davy's do that was detrimental to the Stock Exchange and that incurred the fine? What did it do wrong?
I have outlined that information in my reply. There were three matters put by the International Stock Exchange to Davy's: the non-disclosure to the Department of Finance of the original fee splitting arrangement and the revised splitting arrangement with Warburgh's; the announcements that placing had been completed, made shortly after midday, when that was not the case; and they did not correct the public announcements. These were the issues for which Davy's had to answer and on which the fine was based. It was not found to be totally at fault on all the issues.
Would the Minister agree that one of the most unsatisfactory aspects of the sale of taxpayers' interests was that Davy Stockbrokers, who advised the Minister on the sale and conducted the sale, ended up buying seven million shares? In future in any privatisation will the Minister ensure that there are separate Government advisers to brokers selling shares and that the brokers cannot buy some of the stock? That is the very minimum required.
I accept that point. The way we dealt with the tranche of the Irish Life shares would certainly be good practice in future dealings. I agree with Deputy Yates' second point that when the Government appoints a firm of stockbrokers to deal in the affairs of the public, they should not sell shares to themselves. I did not think that would happen in this case and I am sure this will be a stipulation for all future cases.
Deputy Yates would probably agree that Davy's has suffered far more than the fine of £150,000. It is important for us as legislators to ensure the the Stock Exchange legislation, which dates back to 1799, is brought into a modern Act where we will have transparency. That is another annoying aspect of all of this but Davy's has paid its price. The matter is now closed and we can proceed with the Stock Exchange legislation as soon as possible.
Will the Minister give a commitment to the House that under the new legislation the reports and findings of all disciplinary inquiries will be published so that we will never again be unaware what happened. One has to write to the offender to find out. It is totally unacceptable that under the London Stock Exchange rules the findings are not published in the case of a reprimand such as this. I ask the Minister to give a commitment that under future legislation, the reports or findings of any disciplinary cases or inquiries of this nature will be published in full.
Without going into too much detail, the answer to be Deputy's question is yes. The position is very unsatisfactory and all I can say is that in 1799 the London Stock Exchange knew how to protect itself and it is our job to ensure that in future the taxpayers are protected.
