ASIC sparked anxiety within ANZ over its bond bungle nine months before shareholders found out

ANZ knew of corporate regulator ASIC’s interest in a bungled $14bn bond placement nine months before it informed its shareholders.

ANZ head of institutional banking Mark Whelan and chief executive Shayne Elliott. Picture: Arsineh Houspian

ANZ was alerted to the corporate regulator’s growing interest in its role in a $14bn bond placement in August 2023, nine months before it told shareholders.

The ongoing investigation now threatens to engulf the leadership of the banking major.

The Australian Securities and Investments Commission started demanding ANZ hand over documents relating to its role as risk managers in the $14bn bond placement in August last year.

Sources said the bank’s management was alerted to the corporate regulator’s burgeoning interest months before a formal notification.

Sources have told The Australian that ANZ staff were also called in for interviews in the months after the bank first started handing over documents to ASIC.

That was well before the regulator served ANZ a formal notice of investigation in February this year, as the bank prepared to host its annual Hunter Valley Debt Conference, well known in the industry for staff antics on the sidelines. ANZ chief executive Shayne Elliott has told parliament he first learned of the investigation in February 2024, after a member of the institutional bank’s legal team handed over a notice from ASIC.

Mr Elliott, who has run ANZ since 2016, said the email formally notified ANZ that ASIC was “undertaking an investigation into the trading activity around this issuance”. He told parliament at the time the bank “didn’t have a lot of data at that point, other than ASIC telling us that they were conducting an investigation”.

The ANZ CEO told parliament ASIC’s notice “outlined the basis of it and basically told me that the team would keep informed and there was nothing for me to act upon at that moment”.

However, sources have indicated ANZ senior management within the markets team were alerted – and alarmed by ASIC’s initial demands to hand over documents in August last year.

ANZ chief executive Shayne Elliott and chief financial officer Farhan Faruqui. Picture: Arsineh Houspian

ASIC routinely asks banks to hand over documents, but sources close to the investigation noted the regulator’s correspondence reflected a level of scrutiny unlike previous interactions.

The level of ASIC’s interest and numbers of ANZ staff called in for interviews with the regulator grew to the point that staff even compared notes at a going-away party for a well known trader in December last year.

More than 10 ANZ staffers had been called in for interviews with ASIC by this point, with the regulator subsequently serving Section 19 notices on a bevy of other markets staff in the weeks after handing ANZ its formal notification in February.

ANZ only disclosed the ASIC investigation to investors on May 13.

ANZ recently slashed the short-term bonuses for Mr Elliott as well as institutional bank boss Mark Whelan and chief risk officer Kevin Corbally, saying weeks ago that the men would suffer the consequences for the regulatory attention for the bond scandal.

Mr Elliot saw more than $1.3m gutted from his bonus, down from $2.4m the year prior, while Mr Whelan saw $865,000 sliced from his handouts, down from $1.46m in 2023.

ANZ chief Shayne Elliott, and group executive Australia retail Maile Carnegie appear before a parliamentary committee. Picture: Martin Ollman

However, ANZ made no moves to slash handouts to the executives in 2023, despite months of attention from ASIC over the bond trading scandal, which was already dominating conversations within the markets business. Sources have indicated ANZ markets management were also running their own inquiries alongside ASIC’s demand for documents.

This included combing through internal chat messages from traders in the markets team as well as seeking to unravel how ANZ prepared the bond turnover data supplied to the Australian Office of Financial Management, which saw the bank overstate its turnover by more than $54bn.

ANZ, which declined to comment, noted in its recent annual report the bank had moved to cut the bonuses to senior executives in the bank in response to “recent issues in the Markets business” and a move by the prudential regulator to impose a $250m non-financial risks capital penalty.

But the board noted in the report it could further “freeze or reduce future vesting of equity” in response to ASIC’s investigation, noting an ongoing subcommittee was now handling the mess in the markets business, led by bank chairman Paul O’Sullivan.

ASIC is investigating both the bank’s role in the $14bn placement and bond turnover data supplied to the AOFM.

ANZ had handed the data over to the AOFM as it sought to bolster its case to hold on to a key position in placing Australian government bonds, worth about $100m in annual government bond syndicate fees.

The bank had rolled out an Australian New Zealand Dollar Bond Initiative in 2022, forming a crack squad of sales and trading staff in a bid to hold off a reinvigorated Westpac and underdog Barrenjoey, with both banks muscling into the lucrative scene. The initiative was aimed at bringing together ANZ’s trading and sales teams, led by the then-Singapore based ANZ global fixed income co-head Trevor Vail. It was under this initiative that ANZ compiled its trading figures to supply to the AOFM, with a local member of the markets mid-office working with the bank’s Bangalore staff.

Sources said in the wake of ASIC’s attention ANZ senior management grew to realise the data supplied to the AOFM had overstated the bonds business.

Originally published as ASIC sparked anxiety within ANZ over its bond bungle nine months before shareholders found out