ANZ’s $14bn bond placement raised alarm bells in ASIC months before investigation launched

A freedom of information request shows ASIC and the AOFM saw ‘warning signs’ with a $14bn bond placement by ANZ months before launching a formal investigation in October 2023.

ANZ CEO Shayne Elliott is under pressure as ASIC investigates the bank’s handling of a $14bn government bond issuance from 2023. Photograph by Arsineh Houspian.

The corporate regulator discussed potential breaches by ANZ’s markets team of the Corporations Act and the ASIC Act as far back as July last year, after the bank played a key role in placing $14bn of Australian government bonds, documents show.

A freedom of information request reveals the Australian Securities & Investments Commission canvassed potential legal breaches by ANZ on July 13 last year, in the first email exchange with the Australian Office of Financial Management about the bond deal.

Documents show this initial exchange, as well as five further communiques between the agencies between January and March 2024, saw ASIC and the AOFM contemplating potential consequences for ANZ’s conduct.

ASIC senior lawyer Haydar Tuncer said these documents, including the initial email exchange between the two sides as well as five attached documents, represented the AOFM and ASIC “assessing compliance with the corporations legislation, considering evidence and weighing up regulatory options”.

“This constitutes deliberative matter in the nature of opinion, advice and recommendation that was obtained, prepared and recorded for the purposes of ASIC’s deliberative processes involved in its function of considering potential breaches of the Corporations Act and the ASIC Act,” he said.

The AOFM sits within Treasury and is responsible for issuing Australia’s debt and managing the nation’s cash and financing needs.

Gross federal government debt has surged in recent years, with this year’s budget forecasting it would reach $934bn by June 2025.

ANZ CEO Shayne Elliott and ASIC boss Joe Longo.

The $14bn bond transaction currently being probed by ASIC saw ANZ as a joint lead manager alongside Commonwealth Bank, Deutsche Bank and National Australia Bank. ANZ also held the key role of risk manager on the deal.

The first email exchange between ASIC and the AOFM over ANZ’s role in the bond issuance came just months after the $14bn placement closed on May 3. This suggests the corporate regulator was soon alerted to irregularities in trades of 10-year government bonds and in the futures market, but took several months before ASIC launched its formal investigation around October last year.

The $14bn government bond issuance risk managed by ANZ in 2023 isn’t the only transaction that has raised concerns at the AOFM. Sources told The Australian the 2023 issuance in question was, however, the worst example of irregular trading around a large bond transaction the AOFM had overseen.

The concerns with ANZ partly relate to activity in the futures market around the time the bond issue’s pricing occurred.

An AOFM representative declined to comment, citing the ASIC investigation. While large government bond transactions will always have some impact on financial markets, given their sheer size, ASIC and ANZ will be unpicking exactly what happened last year.

That includes what offers ANZ staff may have had in the futures market and how their actions overall impacted the outcome for the government, as the issuer of the bonds. As revealed in The Australian, ASIC has granted an ANZ employee whistleblower status, after the trader raised concerns over the bank’s conduct.

In its response to the FOI request, ASIC said 12 of the 22 documents assembled by the regulator in its investigation of ANZ’s alleged market manipulation, represented documents and briefs of a “deliberative matter”, noting several contained preliminary advice and analysis as well as the thoughts and opinions of both AOFM and ASIC staff.

“This material comprises AOFM and ASIC opinions, advice and recommendations involving the exercise of judgment in developing and making a selection from different options, including information relating to the consideration of possible options and regulatory responses,” Mr Tuncer said.

But he noted 12 of these documents were exempt from release, warning they concerned “information forming part of ASIC investigations of suspected contraventions of the corporations legislation”. “The documents contain information which may inform the conduct and direction of ASIC’s ongoing enquiries,” Mr Tuncer said. “The release of this material, before ASIC has completed its investigations, would forewarn persons of steps ASIC will or is likely to take in pursuing this matter further, putting the investigation in jeopardy.”

Documents show ASIC is combing through Bloomberg chat messages, with documents showing they were handed over on January 9, as well as copies of past risk manager reports and minutes of the AOFM’s selection meetings for lead manager roles.

MST Marquee analyst Brian Johnson said ANZ’s peers, Commonwealth Bank, Westpac and NAB, had all previously been shaken by major compliance breaches that had distracted management from “optimising the business”. He noted while CBA and Westpac’s breaches had involved financial crimes regulator Austrac, those banks had also endured additional regulatory capital overlays and enforceable undertakings.

Mr Johnson said the ANZ conduct being investigated by ASIC “sounds more intentional than unintentional”.

“But the (potential) fines from ASIC are far lower than the fines from Austrac, perhaps that’s something that needs to be looked at,” he said.

Macquarie analyst Victor German this week warned ANZ could face a potential penalty of as much as $780m penalty from the scandal.

He noted the bank’s markets unit within the institutional banking division, was likely to face more oversight and controls in the wake of ASIC’s investigation.

Westpac paid a record $1.3bn fine to Austrac, while CBA was hit with a $700m penalty.

Originally published as ANZ’s $14bn bond placement raised alarm bells in ASIC months before investigation launched