Collusion news hits all bank shares

Stocks take a dive as probe looms

SOUTH African banks stocks came under further pressure on Friday as the Competition Commission laid bare its case against banks it accused of colluding to manipulate the rand in currency trading.

The slump in the index hit even banks that were not implicated in the commission’s plan to press ahead with the prosecution of nearly 20 local and international banks in what it called a co-ordinated trading in the South African and US currencies.

Nedbank, which was not included in the planned probe, fell 2 percent while Standard Bank and Barclays, who were fingered, slumped 1.33 percent and 1.28 percent respectively.

Indexes of banks such as Rand Merchant Bank and FirstRand, also excluded from the graft investigations, also dropped 1.05 percent and FirstRand followed with 1.11 percent.

On Friday, the commission deposed its founding affidavit to the Competition Tribunal, shedding light on its case against the bank.

While the names of Absa, CitiBank and Barclays feature prominently in the affidavit, there was no indication why no penalties were preferred against them.

Affidavit

“The commission does not seek any penalty against Citibank, Absa. Barclays Capital and Barclays,” reads the affidavit. Last week the commission had said it had referred nearly two South African and International Banks to the Tribunal for prosecution, and that it sought a 10 percent fine of annual turnover against 14 of the banks, including Investec and Standard Bank.

Absa said that it had noted that no penalties were sought against it and would assist the investigation. “Absa will continue to co-operate with the commission during the prosecution of this matter,” the bank said. Chief investment officer at Aeon Investment Management, Asief Mohamed, said it would take months before any settlement was reached, due to the precedence set by the settlement of the construction cartels. “If the banks want to settle, it won’t be just about the monetary aspect, but on the basis that they have to transform the economy and financial services sectors to a more equal footing,” Mohamed said.

In its founding affidavit the commission said that from at least 2007 to at least 2013, the implicated banks devised complex schemes to short-change clients.

The commission’s complaint is anchored around five areas:

The banks allegedly agreed to fix trade and offers on trading platforms by engaging in collusive posting of fictitious bids and offers in the Reuters trading platform and dealers owned platforms to manipulate prices.

They co-ordinated trading activities around the fix, with some traders informing each other how much they needed to sell at a fix to assess their risk exposure and assisting each other in minimising such risk.

They agreed to fix prices of bids and offers quoted to customers by agreeing on price to quote customers.

They also agreed to fix bid-offer spreads by consenting on the size of bid-offer spreads to charge customers for certain volume of currency exchange.

They agreed to co-ordinate trading by assisting each other through manipulating the price of bids and offers through agreements to refrain from trading at particular times.

The commission said currency trading involving the US dollar and rand currency pair accounts for $51 billion (R663.71bn) of the global daily trades in the market valued at $5 trillion a day.

Big companies have recently preferred taking the settlement routes to avoid a protracted battle with the commission. In 2013, 15 construction firms concluded collective agreements of R1.4bn. ArcelorMittal last year made an R1.5bn proposal to the commission for its roles in cartels. Since inception, the commission and the tribunal have levied administrative penalties of more than R6bn on companies for uncompetitive behaviour.

Avior Capital Markets analyst Harry Botha cautioned against overreaction to the investigation as the probe was likely to involve few people in the sector. “We have decent capital markets, there are systems and controls in place, and it’s unfortunate that human behaviour can not always be monitored. The banks are still well managed and ran by very capable people,” Botha said.

Fleecing

However, Mohamed said executives should be held accountable if their companies were found guilty of fleecing clients. “If the tribunal finds the banks guilty, it would mean they manipulated exchange rates which resulted in the weaker than expected exchange rate and this pushes inflation to goods that are imported and this punishes the poor and the middle class,” Mohamed said.

On Friday, speculation rose that some of the banks had broken ranks to seek a favourable settlement with the authorities.

Vuma Reputation Management’s director of operations, Tshepo Sefotlhelo, said while the banks had not been found guilty as yet, It brought into question ethical business practice, transparency, quality of management which are key pillars of reputation.

“High trust translates to higher profits, if banks are found wanting on the matter, the best they can do is to admit their wrong, apologise and provide assurances that they will fix where they erred,” Sefotlhelo said.