ANZ board should reflect on Federal Court decision the bank breached laws, corporate regulator says

The corporate regulator has called on the board of ANZ to reflect on what changes the bank needs to make after it failed to overturn a Federal Court decision that it breached the law during a controversial $2.5 billion capital-raising almost a decade ago.

ANZ should have told the market that three investment banks, Citi, Deutsche and JP Morgan, which underwrote its 2015 capital-raise took up more than 25 million of ANZ’s unsold shares – the subject of a failed criminal cartel case – the Federal Court ruled on Wednesday as it struck out ANZ’s appeal and ended a lengthy legal battle.

ANZ was found to have breached its continuous disclosure obligations during a controversial $2.5 billion equity capital-raising almost a decade ago.Credit: Oscar Colman

Australian Securities and Investments Commission (ASIC) chair Joe Longo said following the court judgement, the ANZ board should reflect on the judge’s statements.

“We filed these proceedings back in 2018, ASIC considered at all times it was a very significant shortfall. It was material and it should have been disclosed to the market, and it wasn’t,” Longo said on Wednesday.

“That view was upheld by a trial judge [last year] and has now been upheld by the full court. It’s really a matter for the ANZ board to reflect on these circumstances and see what changes, if any, they need to be making in their approach to these issues.”

In 2015, ANZ did not tell investors it had fallen short by $790 million on the targeted capital required from institutional investors, and relied on the three investment banks to underwrite it. ANZ sought assurances from the underwriters they would “do the right thing” and trade “on a longer-term basis”.

The bank had argued the shortfall would not have harmed the overall value of the bank and there was no “disorderly” trading that would put downward pressure on the share price. But justices Michael Lee, Brigitte Markovic and Catherine Button dismissed the appeal and ordered ANZ to pay the corporate regulator’s costs. The Federal Court last year handed down a $900,000 fine.

“The mere fact that assurances were sought by senior officers of ANZ demonstrates that there was a real and abiding concern for reassurance,” Justice Lee wrote.

“There was no error in his Honour [Justice Mark Moshinsky] concluding the disclosure of the pleaded information would have been viewed by the hypothetical investor as having altered the total mix of information available in such a way as would be expected to have a material effect on the price of value of ANZ shares.”

Chief executive Shayne Elliott told this masthead the bank believed it was important, on principle, to make its case in front of the full bench of the Federal Court to get greater clarity on the laws.

“It should have been disclosed to the market, and it wasn’t”: ASIC chairman Joe Longo.Credit: Bloomberg

He said the bank had made changes over the past decade to improve its compliance with continuous disclosure obligations, but would consider the judgement and reflect on whether further changes were required.

“It wasn’t about us spending shareholders’ money trying to protect me or our bank’s reputation or anything,” Elliott said.

“The board thought long and hard about that. To some, again, it would have been easier just to walk away and just accept the last one [trial judgement], but we felt this is important. Capital markets are important. It’s important that we have greater clarity and understand the application of the rules and how they apply.”

The decision on Wednesday ends a years-long legal stoush that began when the competition watchdog in 2018 launched an investigation after JP Morgan self-reported to the Australian Competition and Consumer Commission it was involved in an alleged cartel during the capital raising.

That investigation, which alleged bankers agreed over telephone calls how the excess ANZ shares would be offloaded on the market to keep a floor under the bank’s share price, was referred to the Commonwealth Director of Public Prosecutions. Charges were dropped two years ago.

Longo said he would not comment on ANZ’s compliance culture, which has been under the spotlight amid heightened concerns about its governance, stemming from the bank’s bonds trading scandal. Traders are alleged to have manipulated the benchmark 10-year futures rate when ANZ managed a $14 billion government bond sale last year, potentially costing taxpayers up to $80 million.

Elliott was in 2015 the chief financial officer who oversaw the $2.5 billion capital-raising program.

At a business event in Singapore, where ANZ executives are visiting this week to celebrate the bank’s 50th anniversary, Elliott said the board was investigating whether the poor workplace culture uncovered in the Sydney dealing was confined to a small group of individuals or if they were systemic.

“We’re looking around the board to say, ‘hey, let’s just make sure that this is isolated’,” Elliott said. “And if we need to change policies, train people … we will.

“You can’t change a culture overnight, and it’s not about what the boss says or what I put on a poster or what we put in training programs. Those things can help in setting direction, culture changes through … a series of interventions and changes over a long period time.”

Elliot told this masthead an external investigation into the bonds trading issue would be completed within the next few months, most likely early in the new year.

The reporter is in Singapore as a guest of ANZ.

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