ANZ, Citi, Deutsche face cartel charges
Institutional placement did not disclose underwriters had to soak up 25.5 million shares
A ustralia’s
banking industry faces an unprecedented criminal prosecution as Australia & New Zealand Banking Group Ltd and two of its underwriters, Deutsche Bank AG and Citigroup Inc, brace for cartel charges over a A$2.5 billion ($1.9 billion) share sale.
The case follows probes by both Australia’s securities regulator and competition watchdog into ANZ Bank’s institutional placement of 80.8 million shares in August 2015. Investigators have focused on why the Melbourne-based lender didn’t disclose that underwriters had to soak up 25.5 million shares worth A$789.2 million and how they subsequently sold them onto the market.
“The charges will involve alleged cartel arrangements relating to trading in ANZ shares” after the placement, Rod Sims, chairman of the Australian Competition and Consumer Commission (ACCC), said in a statement Friday. ANZ Bank’s group treasurer Rick Moscati is also likely to be charged, he said.
In separate statements, the three banks said they had complied with market rules and will defend against the allegations.
With the nation’s lenders scrambling to meet new regulatory requirements in 2015, the sale was aimed at lifting ANZ Bank’s capital reserves. Citigroup said a criminal case would be an unparalleled foray by prosecutors into an area of Australia’s capital markets that has successfully used underwriting syndicates for decades.
“This is a highly technical area and if the ACCC believes there are matters to address, these should be clarified by law or regulation or consultation,” Citigroup said in a statement.
The competition watchdog is alleging the underwriters “reached an understanding with respect to the disposal” of the stock — which represented less than 1% of ANZ Bank’s outstanding ordinary shares, Citigroup said.
A prosecution of this type “is almost unique,” said Andrew Grant, who specialises in banking at the University of Sydney Business School. “Resorting to criminal charges against the ANZ and others would suggest the authorities feel they have a particularly strong case.”
The allegations add to a litany of woes for the banking industry in Australia. An inquiry into misconduct in the financial industry has uncovered extensive wrongdoing, from lying to regulators, falsifying documents and taking bribes, to extracting fees from customers long since dead. ANZ Bank last year paid A$50 million to settle allegations it rigged a benchmark interest rate.
ANZ Bank closed down 1.5% at A$26.80, valuing the lender at A$77.6 billion.
Deutsche Bank said it takes matters of conduct “extremely seriously” and it has cooperated fully with the ACCC during the investigation process.
“The bank believes it and its staff acted responsibly and in a manner consistent” with market integrity rules, it said.
A spokesman for JPMorgan, the third underwriter on the share sale, declined to comment on reports by the Australian and Australian Financial Review newspapers that it received immunity from prosecution in return for information.
It’s set to be the first criminal case against a bank by the ACCC, which three years ago set up a unit dedicated to investigating criminal cartels.
“There will be an increasing number of these prosecutions and I would be confident we’ll see more this year,” said Mr Sims.
The institutional placement was completed at A$30.95 per share, a 5% discount to the previous closing price. ANZ Bank’s shares slumped 7.5% on Aug 7, 2015, the day after it announced the placement, the biggest fall in almost seven years.
The Australian Shareholders’ Association said the allegations were a “wake-up call to reform capital raisings by ASXlisted companies” and added that current structures unfairly favour institutional shareholders.