ACCC’s cartel case against ANZ, Citigroup, Deutsche Bank, spurs industry-wide change

The ACCC’s cartel action is being closely watched by the investment banking community. Photo: AFP

The competition regulator’s explosive cartel case against ANZ and its investment bank advisers has triggered a quick fix for capital raising agreements, after panic swept the industry.

When the case was launched by the Australian Competition & Consumer Commission in 2018, the investment banking sector was on tenterhooks, given what it could mean for underwriting agreements.

But their armies of lawyers and compliance people have since come up with a neat solution, by adding a few extra words or a sentence to the documents that manage how banks oversee and execute a capital raising. The addition basically says investment banks working together can act as a joint venture or syndicate until all shares under the offer are sold or distributed.

The issue for ANZ, Citigroup and Deutsche Bank is how they managed surplus shares that investors didn’t take up in the $2.5bn 2015 raising. A fellow bank on the deal, JPMorgan, is in the ACCC’s camp via an immunity arrangement.

In labelling it a cartel, the ACCC says there was “an arrangement or understanding” about how to deal with a shortfall of ANZ shares.

Capital raisings — and their structure and the conduct of bankers — are again in the spotlight in 2020 given the COVID-19 wave of raisings across the ASX.

The case has far-reaching implications for the six executives that have been charged, and legal costs across the banks may print in the order of $60m-$100m, given a formal trial is yet to begin. It will be interesting where the action goes, following this week’s pre-trial hearings, as the next stage is a case conference and the matter is likely to be referred to the Federal Court.

Given JPMorgan was arguing the ANZ capital raising conduct didn’t constitute cartel behaviour but at the same time wanted to have the fallback of relying on immunity if it needed it, the strength of the ACCC’s criminal case has to be questioned. But only time will tell.

This week, the ACCC’s executive general manager of specialised enforcement Marcus Bezzi said the capital raising agreement was a key part of evidence, more so than JPMorgan witness statements. He also admitted that JPMorgan and its lawyers were at times playing “both sides”.

The case against ANZ, Citigroup and Deutsche is a lot less clear-cut than other cartel cases where price fixing is a key element.

It is also different to other criminal actions pursued by the ACCC because lawyers and compliance officers were highly involved in managing the ANZ capital raising and the shortfall.

The ACCC got powers under the Competition and Consumer Act of 2010 to pursue criminal cartel actions, and has so far initiated seven, including the ANZ case.

In the ACCC’s first successful criminal cartel prosecution, the Federal Court in 2017 convicted Japanese shipping company Nippon Yusen Kabushiki Kaisha (NYK) of cartel conduct and imposed a fine of $25m.

In that case, which related to an arrangement or understanding with other shipping lines for the transportation of cars to Australia, NYK entered a guilty plea in 2016.

In a similar case, Japan shipping firm K-Line was last year fined $34.5m by the Federal Court, while Norwegian shipping company Wallenius Wilhelmsen last month pleaded guilty to criminal cartel conduct.

Country Care, its managing director and a former employee will stand trial in a cartel conduct case relating to products used in rehabilitation and aged care. Vina Money Transfer and five individuals are also the subject of cartel charges, as is the Construction, Forestry, Maritime, Mining and Energy Union and its ACT divisional branch secretary Jason O’Mara.

Last year, the ACCC started a civil case against BlueScope Steel and former sales manager Jason Ellis for alleged cartel conduct in the supply of flat steel, including claims of price fixing and agreements to raise prices with distributors.

Baton change

Westpac has plugged another key hole in its front bench after on Thursday announcing the appointment of Deutsche’s Australian chief and joint Asia-Pacific investment bank boss Anthony Miller to replace Lyn Cobley as head of its institutional bank.

This column understands it was a two-horse race between Miller and another external candidate, with the former firming as the favoured executive in the past two weeks. A special Westpac board meeting was convened to sign off on the appointment.

Internal contenders are understood not to have made the final rounds of the search, with acting institutional boss and group treasurer Curt Zuber planning to retire over the medium term.

Westpac CEO Peter King and the board are yet to fill the head of retail role vacated by David Lindberg or the chief information officer gig being exited by Craig Bright.

To King’s credit he has locked in the chief financial officer role with KPMG’s Michael Rowland and Miller will head the institutional bank, probably starting around October. Two external appointments will bring fresh sets of eyes to beleaguered Westpac as it continues to fight Austrac’s legal action which alleges more than 23 million breaches of the law. There is also COVID-19 to navigate.

One of Westpac’s go-to headhunters, Heidrick & Struggles, was on deck scouring local and international markets for a new head of its institutional bank.

Prior to joining Deutsche in 2017, Miller had a long stint at Goldman Sachs, including as co-chief of the Asia-Pacific investment banking solutions arm and head of the financing group for Australia and New Zealand.