According to the news report by Bloomberg, Australia’s banking industry is facing unprecedented criminal prosecution. Some of the top banks in the country, ANZ (Australia & New Zealand Banking Group Ltd.), two of ANZ’s underwriters, Citigroup Inc. and Deutsche Bank AG are facing cartel charges due to the sale of shares worth AU$2.5 billion (~$1.9 billion).
This case has been filed after Australia’s securities regulator as well as competition watchdog investigated ANZ’s institutional placement of about 80.8 million shares back in August of 2015. The investigation has been centered on why the bank did not disclose why two of its underwriters had to absorb 25.5 million shares that were worth about AU$789.2 million and how these underwriters then sold the shares into the market.
The Chairman of the Australian Competition and Consumer Commission (ACCC), Rod Sims made a public statement on Friday that the above mentioned banks were being accused of cartel arrangements in relation to trading in ANZ Bank’s shares. Mr. Sims stated that the Group Treasurer of ANZ Bank, Rick Moscati may also be charged in relation to these allegations.
Each of the accused banks have released individual statements that they had complied with relevant market regulations and were going to defend these allegations made against them.
In 2015, Australia’s banking regulator raised the average amount of capital that the country’s four main banks needed to hold against possible home-loan losses. The regulator also mandated that the banks would need to add another 200-basis points of capital so that they could be considered some of the safest banks in the world. Because of these new regulations, ANZ was one of the banks that ended up selling its shares so that it could lift its reserves of capital.
According to Citigroup, considering the situation at the time, a criminal case against the banks was going to be an exceptional incursion by legal prosecutors into a segment of the capital market that has used underwriters and underwriting syndicates for decades. Citigroup released a statement, saying that this was an extremely technical area and that if the ACCC had issues with the banks then these issues needed to be addressed through the correct application of the law or regulation or even via consultation.
The banking giant also stated that the shares sold constituted less than 1% of ANZ’s outstanding ordinary shares, however, the way in which the competition regulator has framed the allegation, it sounds like the underwriters had reached an understanding with regard to the disposal of the said stocks.
A banking specialist at the University of Sydney Business School, Andrew Grant said that this kind of a prosecution was unique. Grant also stated that if the Australian authorities have opted to put criminal charges against the biggest banks in the country, then it must be because they feel they have a strong enough case against these big lenders.
The news of these allegations caused ANZ Bank’s shares to drop 1.5% to AU$26.80, with a market cap of AU$77.6 billion.
These new accusations are only a new addition to a long list of misdemeanors by Australian banks in the recent past. Investigations into issues of misconduct in the Australian financial industry has opened up a can of worms, revealing extensive wrongdoing on the part of the banks. These inquiries have found banks to be guilty of lying to regulators, taking bribes, charging fees from customers that have died a long time ago and even falsifying documents.
ANZ Bank specifically had to pay out AU$50 million in 2017 as a settlement in a case that detailed allegations that the lender had fixed a benchmark rate.