ANZ rate rigging went right to the top

Via the ABC:

ANZ chief executive Shayne Elliott and other senior managers have been implicated for the first time in the interest rate rigging scandal that rocked Australia’s financial system.

The details are outlined in a tranche of court documents obtained by the ABC that were quietly filed by the corporate regulator shortly before a settlement was reached.

ANZ was fined $50 million last year after it admitted that it had attempted to manipulate the Bank Bill Swap rate (BBSW) on 10 occasions between 2010 to 2012.

At the time, the BBSW was a key interest rate set daily by Australia’s biggest banks and influenced how much consumers paid for mortgages, personal loans, credit cards and other forms of debt.

The bank maintained that only “a small number of traders” were involved.

However, the documents now show ASIC had evidence that senior management were aware of, and involved in, the bank’s strategy to manipulate the interest rate market.

The Federal Court documents filed in May 2017, published for the first time today, show ASIC belatedly added evidence that former chief executive Mike Smith, former chief financial officer Peter Marriott and current chief executive Shayne Elliott knew about the bank’s activities.

ASIC provided a list to the court in March 2016, which was widely reported on, naming members of ANZ senior management which it believed to be involved in, or have knowledge of, ANZ’s rate-setting practices.

Mr Elliott, Mr Smith and Mr Marriott were not named.

ASIC still appears confused about why key evidence implicating ANZ’s top executives was omitted for 14 months.

In a statement to the ABC, ASIC said a number of documents were not initially included because:

“a) We will [sic] still reviewing them; or b) At the time we understood some were the subject of a privilege claim, although that turned out not to be the case.”

ANZ said the omission of the details was a matter for ASIC.

“We were not involved in ASIC’s deliberations in any way in relation to the preparation of its court documents,” it said.

Executives deliberate while traders get ‘annihilated’

ASIC alleged an ANZ internal report sent to risk managers calculated the bank would need to pump an extra $2 billion into the market on certain days to have a shot at manipulating the BBSW rate.

The amended evidence submitted to the Federal Court shows in November 2010 a presentation was emailed to Shayne Elliott, stating the bank was losing around $15-30 million a year because it couldn’t “manage its daily exposure to BBSW”.

Documents show that discussions involving Mr Elliott went back at least nine months.

A March group email between then-chief executive Mike Smith, Shayne Elliott and two others shows them discussing a new plan to move more funds to Mr Elliott’s Institutional division.

This was part of a structural reorganisation by the bank to give more power to the trading floor.

ASIC alleged this money was partly to be used to improve the bank’s ability to manipulate the BBSW.

In the email, Shayne Elliott said he was advised the funds could be a “significant benefit to the group”.

“Mike [Smith] is open to the idea,” he wrote to Stephen Bellotti, a senior markets manager.

Court documents submitted by ASIC show five months later, in August, traders were venting their growing frustration about losses on the BBSW in florid language.

“Oh mate I’ll be c*nted,” former head of balance sheet trading, Jason Pritchard said.

“I’ll be absolutely fucking annihilated on some of the rate sets and I don’t have the power of issuance.

“We’ll just ask for as much discretion as we need and then I couldn’t give a f*** about it, as long as we can f***ing belt the rate set around,” another trader, Rob O’Callaghan, said in a separate phone call on August 17.

On that same day an email was sent to senior management, including Mr Elliott, about the bank’s proposal to free up funds for the traders.

ASIC alleged one reason put forward in the email was that it would enable ANZ to “further optimise/leverage rate sets” which was estimated to be worth $14 million to the bank.

Two months later in October, a New Zealand executive raised concerns about the plan to free up so much of the bank’s available cash for traders.

“It places the bank’s short-term funding and its liquidity portfolio in the hands of [a] trader who [may] then manage this in an imprudent way to maximise revenues,” New Zealand global markets manager Andrew Allen wrote in an email that was forwarded to Mr Elliott.

Despite these concerns, ANZ executives continued working on the restructure.

A PowerPoint presentation sent to senior management, including Mr Elliott, in November stated the proposed new funding structure would allow ANZ to “catch up to our competitors” and “optimise the bank’s position in the market”.

It also included a draft section which highlighted that Westpac “has the most powerful influence on the BBSW”.

A later version of the PowerPoint detailed a 2009 trade in which Westpac “pushed” the BBSW down by 19 basis points on one day, and then up by 20 basis points the next day. It noted ANZ “lost $AU2.9 million” as a result.

It is unclear whether the later version of the PowerPoint including that example was seen by Mr Elliott.

Of the big four banks, Westpac was the only big bank to fight the regulator in court over rate-rigging charges. It was found to have engaged in unconscionable conduct and traded with the purpose of influencing the rate. CBA, NAB and ANZ all settled.

Comments

  1. Hmm. No one surprised apparently.

    Speaking of BBSW…back up to 200 bps today. Charts on bank hybrids not looking too flash either.

    • Agreed! After so much crime in the FIRE sector, the regulators really have to jail their mates. Though will it ever really end? The guys in power always seem to escape.

    • Forrest GumpMEMBER

      Yep.

      You get a pyromaniac that sets fine to the scrub…people lose their houses. He gets jail.

      You get the bank that manipulates the market, people lose their house….nothing…

  2. Rate rigging big deal compared to the profit they have made off the amount of debt consumers are in.
    This just proves they knew the crisis that’s now in motion

      • The crooks at the top have been stewing in the barrel of corruption the longest.
        If Labor comes good on another 2-3 years of real royal commission I think we will see just how rotten they all are and how deep the criminality goes.

  3. Alan CameronMEMBER

    Years ago banks had a level of integrity that seems to have gone. The interest rate on a loan was about twice the interest rate paid for money in a savings account. Now it seems to have gone up to about 500 times as high.

  4. At the time, the BBSW was a key interest rate set daily by Australia’s biggest banks and influenced how much consumers paid for mortgages, personal loans, credit cards and other forms of debt.

    So if they colluded to set the interest rate, did they set it higher or lower?
    Is there scope for a class action against the banks if they set it higher and everyone ended up paying more interest than they should have?

    • The best part is someone got screwed either way. Bond holders or customers. Heads I win, tails you lose!

  5. “Oh mate I’ll be c*nted,” former head of balance sheet trading, Jason Pritchard said.- lol!!!