ANZ hit with extra $250 million capital charge over poor culture concerns

The Australian Prudential Regulation Authority says it has heightened concerns about ANZ’s corporate governance stemming from the bank’s bonds trading scandal and has demanded the bank hold an extra $250 million in capital until it cleans up its cultural problems.

APRA on Friday morning criticised ANZ for not fixing its non-financial risks more than five years after it ordered the bank, along with Westpac and NAB, to each hold $500 million in capital over similar issues, bringing the total impost on its balance sheet to $750 million.

ANZ’s headquarters in Sydney. The company is at the centre of a regulatory probe into its markets team.Credit: Natalie Boog

“While the bank has implemented actions to improve its risk governance and culture over the past five years, these recent issues suggest there continues to be material gaps that need to be closed as a priority,” APRA chair John Lonsdale said.

“We have communicated our clear expectations to the ANZ board and executive team that these issues must be urgently reviewed to ensure underlying drivers are identified and addressed.”

The regulator said ANZ had not significantly improved its non-financial risk management over that period, and its concerns were exacerbated after the bank admitted the markets unit inflated its bond trading figures to the federal government, portraying itself as more experienced than it actually was.

An internal investigation into workplace culture in the Sydney dealers’ room also identified poor behaviour. The Australian Securities and Investments Commission is now investigating the bank for allegedly manipulating the bond rate, forcing up the federal government’s cost during a $14 billion debt sale.

Alongside the requirement to hold extra capital, APRA has demanded that ANZ launch an independent review into the root causes of the governance issues in the markets unit and develop a remediation plan in response to the findings.

In a statement to the market, ANZ said it acknowledged APRA’s concerns and was expediting its work currently under way to address the regulator’s concerns.

“This includes working with APRA on the scope of an independent culture and control review within its markets business, which has already been initiated and will report to the board,” ANZ said.

Morningstar senior equity analyst Nathan Zaia said capital add-on charge would not materially affect ANZ’s bottom line, but said APRA’s comments highlighted banks needed to clean up their corporate governance structures, especially following the banking royal commission.

“You would’ve thought there was greater oversight and spend to try and close those shortfalls,” Zaia said.

“It just goes to show how complicated and difficult it could be when people are motivated to make as much as they can and reimbursed for that.”

MST Financial banking analyst Brian Johnson said APRA’s public update on Friday morning indicated it had serious concerns about ANZ’s culture, and the bonds trading scandal.

“This is the first leg of it,” Johnston said. “Potentially, there are fines, increased regulatory compliance costs, change in management and brand damage.”

Shares in ANZ fell 1 per cent in early trade to $29.66.

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