ANZ, Deutsche and Citigroup face criminal cartel charges

ANZ and its group treasurer, plus Deutsche and Citigroup, face criminal prosecution over a $2.5bn share placement in 2015.

ANZ said it acted in accordance with the law. Pic: Hollie Adams

ANZ Bank and its group treasurer Rick Moscati, as well as Citigroup and Deutsche Bank, face criminal proceedings for their alleged involvement in cartel conduct relating to the bank’s $2.5 billion capital raising in late 2015.

The move, brought by the Australian Competition and Consumer Commission, marks one of the biggest cases since the competition regulator was last year given tough powers to pursue Australian companies under criminal cartel provisions.

ANZ, Citigroup and Deutsche said they would defend the criminal cartel charges planned by the Commonwealth Director of Public Prosecutions.

ANZ said the CDPP “advised late yesterday it intends to commence proceedings against the bank for being knowingly concerned in alleged cartel conduct by the joint lead managers of ANZ’s underwritten institutional equity placement of approximately 80.8 million shares in August 2015.”

It said the proceedings, which follow an investigation by the competition watchdog, relate to an arrangement or understanding allegedly made between the joint lead managers in relation to the trading of ANZ shares.

Confirming the looming legal action, the ACCC said the anticipated criminal cartel charges would be laid against ANZ, ANZ group treasurer Rick Moscati, two other companies and a number of other individuals.

“It will be alleged that ANZ and the individuals were knowingly concerned in some or all of the conduct,” said ACCC chairman Rod Sims.

Investment banks Citigroup, Deutsche Bank and JP Morgan were involved in the 2015 placement. None were named in the ANZ or ACCC statements.

However Deutsche and Citigroup confirmed separately they face charges over the matter.

“Deutsche Bank intends to vigorously defend those charges. Given this is a legal matter, we will not be providing any further comment at this time,” the Deutsche said in an emailed statement. “We take conduct matters extremely seriously and have co-operated fully with the ACCC during the investigation process.

“Financial markets are highly regulated under the Corporations Act and ASIC market integrity rules. The bank believes it acted responsibly and in a manner consistent with those rules.”

Citigroup said it had yesterday been served a notice from the Commonwealth Director of Public Prosecutions that it faced prosecution for alleged criminal contraventions of cartel provisions. It said it “steadfastly” denies the allegations.

Citigroup said the allegations involve an area of financial markets activity that has not been considered by any Australian court or addressed in any regulatory guidance notes previously published by the ACCC or the ASIC.

“This is a highly technical area and if the ACCC believes there are matters to address, these should be clarified by law or regulation or consultation,” Citi head of corporate affairs Guy Matthews said in a statement.

“Citi will vigorously defend these allegations on behalf of itself and its employees,” he said.

Mr Matthews said the allegations put forward by the ACCC and the CDPP was that the joint underwriters “reached an understanding” about shares in the ANZ raising. “Any such allegation should be considered in the context that ANZ’s shares are bought and sold freely by thousands of shareholders in volumes representing hundreds of millions of dollars every business day, including for the period in question,” Mr Matthews said.

“Citi and its employees acted with integrity and without any bad intent in fulfilling the obligations of this underwriting agreement,” he said.

Mr Matthews said in line with market integrity rules, Citi “participated in orderly capital markets to ensure that the required outcomes for ANZ and its shareholders were achieved”.

Separately, The Australian’s DataRoom says JP Morgan is understood to have been granted immunity from criminal proceedings, after the US-based investment bank offered full disclosure.

ANZ chief risk officer Kevin Corbally said earlier: “We believe ANZ acted in accordance with the law in relation to the placement and on that basis the bank intends to defend both the company and our employee.”

ANZ said it was also co-operating with an investigation by the Australian Securities and Investments Commission into the placement.

The equity raising came after regulators said in 2015 that the Big Four banks would have to inject billions of dollars into their mortgage books and boost overall capital levels to “unquestionably strong” levels.

According to ANZ’s statement, ASIC is investigating whether ANZ’s announcement on August 7, 2015 should have stated the joint lead managers took up approximately 25.5 million shares of the placement. This represented about 0.91 per cent of total shares on issue at that time.

The ACCC said it did not intend to make any further comment until charges are laid.

ANZ (ANZ) said it would not make further comment at this time.

At 10.53am (AEST), ANZ shares were down 60 cents, or 2.2 per cent, at $26.61, making them the worst performing of the big banks.

The ACCC had passed its finding from a lengthy investigation to the CDPP, which has yet to file a statement of claim. People close to the matter believe it could be filed as early as today.

There are four areas covered by cartel conduct laws, including price fixing, when competitors agree on a pricing structure rather than competing against each other; sharing markets, when competitors agree to divide a market so participants are sheltered from competition; rigging bids, when suppliers communicate before lodging their bids and agree among themselves who will win and at what price; and controlling the output or limiting the amount of goods and services available to buyers.

The ACCC in 2016 won its first criminal charge against a corporation — shipping giant Nippon Yusen Kabushiki Kaisha — and at the time flagged up to a dozen more criminal cartel investigations.

ANZ’s 2015 raising, which comprised the $2.5 billion placement and a $500 million share purchase plan for ordinary shareholders, caught the market by surprise after the then chief executive Mike Smith had previously suggested a raising would not be necessary.

Retail shareholders were angry at the preferential treatment given to institutional shareholders, while ANZ’s share price suffered their biggest one-day fall in nearly seven years on the announcement of the raising. “I do appreciate that there was a level of surprise that we moved so quickly and through a placement,” Mr Smith said in August 2015.

“Our judgment was that it was the best way of balancing support for retail shareholders and completing the capital raising in a fair, timely and efficient way.”

Meanwhile, ratings agency Moody’s said the announcement is credit negative for the bank.

“The consequences of the potential proceedings could be significant and would be credit negative for ANZ,” Frank Mirenzi, Vice President, Moody’s Investors Service, said.

Adding that “in the short-term they are likely to create further challenges for the bank’s brand and reputation”.

With AAP