ANZ loses bond deals as trading scandal probed

Queensland has pulled ANZ from its bond deals, while other state governments are closely reviewing its involvement, as the market braces for the bank’s trading scandal to spread.

ANZ chief executive Shayne Elliott. Picture: Arsineh Houspian

Queensland has pulled ANZ from its bond deals, while other state governments are closely reviewing its involvement, as the market braces for the bank’s trading scandal to spread, amid warnings other lenders will face close scrutiny of their trading practices.

QTC, the government agency charged with handing Queensland’s almost $147bn debt book, has removed ANZ from its 12-bank fixed-income distribution group that acts as intermediaries with investors.

Queensland is expected to grow its debt pile by more than $41bn over the coming four years to a peak of $188bn by mid-2027.

A spokeswoman said QTC bank partners and counterparties were “required to comply with all laws and maintain good conduct and risk management”, warning the agency was aware of ongoing investigation into ANZ’s Australian markets business.

“We have not mandated ANZ in any syndicated bond transactions while inquiries continue,” the spokeswoman said.

NSW Treasury Corp, the state’s debt agency, said it had last used ANZ as a joint lead manager on May 10, just three days before the bank publicly revealed it was facing an investigation by the corporate regulator over a $14bn government bond deal. “We review all our transactions as part of our usual business practices,” a NSW TCorp spokeswoman said.

Activist investor Lee IaFrate, chairman of boutique funds manager Armytage Private, said allegations ANZ had manipulated the government bond rate could reduce confidence in the broader sector, with potential contagion now in prospect.

“History tells you that where there’s one cockroach, there’s more.

“What’s got the market concerned is there may be more to this than meets the eye and it’s a loss of confidence at a time when the whole banking sector in Australia is pretty much on a rerated footing,” Mr IaFrate said.

He said the big concern for the market was the unknown.

“We just don’t know (what happened with the bond trade). Is it just ANZ (allegedly)? Are there others? Nobody knows, but history tells you that it takes two to tango,” he said.

“It’s damning from the point that the banks have done a lot to get back the confidence of the market. And this certainly isn’t a step in the right direction.”

ANZ is one of the top 10 holdings in both Armytage’s strategic opportunities fund and its equity income fund.

After the banks copped an “absolute battering” during the Hayne royal commission because of their “alleged skulduggery”, it had taken years for confidence in the banks to return, he noted.

“Just when you thought it was safe to come outside, you get blindsided by this ANZ alleged malpractice,” Mr IaFrate said.

“What will happen is ANZ will get put in the naughty corner. The premium they were trading at in the market will now be taken away, and we can see their price is now coming off.

“What we don’t want to see is it taken away from the whole banking sector.”

He said recent strength in financial stocks had spread to the regional banks and wealth managers, including AMP and Insignia Financial.

All are in positive territory for the year to date.

ANZ’s share price fell 1.2 per cent on Monday to $28.82 against a broader market gain of 0.9 per cent. The other major banks all ended the session higher.

Argo Investments managing director Jason Beddow said there appeared to be gaps in the oversight of ANZ’s trading operations but that it was too early to say exactly where the blame may lie.

“There’s flaws somewhere, one way or another, but depending on which path it takes, who’s ultimately responsible? Sure, you could say it’s the CEO, but I think under some scenarios, they could be excused.

Under other scenarios, they would probably lose their job, depending on what’s happened. It’s not a great look regardless.”

Mr Beddow said ANZ chief executive Shayne Elliott had been criticised but that it was too early to say whether the bond trade investigation would lead to him exiting the top job sooner than expected.

Before the scandal came to light, Mr Beddow was tipping Mr Elliott to stay in the top job for another two years to oversee the Suncorp takeover.

ANZ makes up about 3 per cent of Argo’s portfolio, putting it in the top 10 of the listed investment company’s holdings.

The bank last week provided some detail on the three-part crisis facing the lender, all surrounding its trading division.

The bank is under investigation from the corporate cop for allegedly manipulating a $14bn government bond sale in 2023; it has admitted supplying the Australian Office of Financial Management with inflated bond turnover numbers in fiscal 2023, which in turn would have seen it win more mandates; and has in recent days it fired, suspended and warned a number of traders over their behaviour and conduct.