Bloxham's problems started with trades made in 2007
THE problems at Bloxham Stockbrokers appear to date back to trades made five years ago, when it bet on some of the largest companies on the Dublin stock exchange, sources said yesterday.
The Central Bank and the stock exchange announced on Monday that Bloxham was banned from trading after irregularities were discovered dating back to 2007.
Bloxham confirmed the sale of its private clients' business and asset-management arm to Davy Stockbrokers early on Monday morning, following a weekend of feverish talks between the two brokers.
Two investigations have been launched. The sale of the private-client business had been agreed in April.
Sources said yesterday that Bloxham's problems began in 2007 as the broker bought stocks in Allied Irish Bank, CRH and a handful of other large companies, which then saw their share price collapse as the credit crunch began in the summer of that year and quickly became a full-blown crisis.
The trades, which were completely legitimate, were so-called 'underlying trades'. These allow traders to make bets that an underlying stock price will move upwards.
Traders usually set a target price for an expected bull run and use spreads to reduce cost.
It seems that losses mounted as the traders continued to wait for the market to turn -- which has still not happened.
These trades were made in the hope that the positions could be sold to private clients but they do not appear to have been made on behalf of private clients.
The losses were hidden from the partners but they reduced the amount of capital and profit that Bloxham was making.
Stockbrokers at Davy struggled to understand what was going on as they pored over Bloxham's books last weekend during emergency meetings that allowed Davy to take control of Bloxham's profitable private clients and asset-management arms.
While Davy's experts could not hope to uncover all the irregularities, they needed to be sure that the two units which were being acquired for around €6.5m did not contain any nasty surprises.
The Central Bank plans to interview the financial partner Tadhg Gunnell later this week about the alleged irregularities that led to Bloxham's closure.
Mr Gunnell has been suspended from Bloxham but remains a partner. His permission is required for important decisions that affect what remains of the firm, including Monday's sale of the private client and asset management arms. Calls to Mr Gunnell's home in Dublin 7 were not returned yesterday.