ASIC probes ANZ staff over bond manipulation

The corporate watchdog has begun informally interviewing staff from ANZ’s institutional division over unusual trading activity.

ANZ CEO Shayne Elliott. The corporate watchdog has begun informally interviewing ANZ staff over unusual bond activity. Picture: Dan Peled / NCA NewsWire

The corporate regulator has begun a key phase of its investigation into alleged market manipulation by ANZ, informally interviewing staff from the bank’s institutional division over unusual trading activity in government bonds and futures.

While the Australian Securities & Investments Commission has started engaging with bank employees, The Australian understands the watchdog is yet to grill staff at the centre of the allegations within ANZ’s markets unit. Sources said the regulator was conducting due diligence and firming up a potential case before conducting formal interviews. An ASIC spokesman and an ANZ spokeswoman both declined to comment on Monday.

The latest development comes after ANZ chief executive Shayne Elliott and institutional boss Mark Whelan last week said the bank was co-operating with regulators to get to the bottom of the allegations and would take action if required.

The matter concerns ANZ’s bond trading activity and alleged manipulation of bond futures contracts, as well as broader cultural issues within the bank’s markets unit.

The big four bank on Thursday confirmed it had brought in two law firms to uncover any ­evidence of wrongdoing within the division, as it grapples with the fresh accusations of market ­manipulation.

The prudential regulator also has an open file on ANZ in relation to the bank’s trading in government bonds and futures.

That follows ASIC assessing a complaint about ANZ and matters raised by the Australian Office of Financial Management (AOFM), which is responsible for managing the country’s debt portfolio and financing.

ANZ in May confirmed ASIC was investigating suspected contraventions of a number of provisions of the ASIC Act and the Corporations Act, following the bank’s execution of a 2023 issuance of 10-year Treasury bonds by the AOFM.

The AOFM hired ANZ on a $14bn deal in April 2023 but the lender was not chosen to take part in an $8bn long-dated debt sale that took place a few months later.

ANZ was also left out of managing the government’s first green bond, a $7bn issuance that took place last month.

Peers Commonwealth Bank, National Australia Bank and Westpac were all called on to manage the deal.

The latest scandal threatening to engulf ANZ comes as investors wonder when Mr Elliott will hand over the CEO reins, after heading the bank for more than eight years.

Institutional boss Mark Whelan has been named among contenders that could take his place, but the latest investigation, which centres on activities within his division, could derail his chances.

At the very least it raised serious questions about the bank’s compliance framework and culture, fund managers said.

“This looks pretty bad for ANZ, because it’s happened to them before, many years ago. And it shows the compliance framework they have in place is clearly not good enough,” Tribeca Investment Partners portfolio manager Jun Bei Liu told The Australian.

“Culture is hard to change and this just adds another black mark for ANZ’s management.”

The latest allegations would make it harder for Mr Whelan to become ANZ’s next CEO, Ms Liu added: “I don’t think it puts him fully out of the running but it adds a bit more pressure,” she said.

Australian Eagle Asset Management portfolio manager Alan Kwan said the alleged manipulation of the government bond market suggested ANZ should have had “a bit more control” of staff conduct within the markets division.

“It’s something that the board and senior management are going to have another look at, which no doubt they are,” Mr Kwan said.

If the federal Treasury started “jumping up and down” about ANZ’s trading behaviour, further questions would be asked of Mr Whelan, as he was accountable for that division, Mr Kwan added.

It’s not the first time ANZ’s markets team has been embroiled in scandal. The bank, alongside its big four peers, fell foul of ASIC in 2016 when the regulator accused a group of lenders of engaging in market manipulation and unconscionable conduct by rigging the bank bill swap rate.

The BBSW provided a benchmark for setting interest rates across a range of products, including personal and business loans.

ANZ eventually admitted to manipulating the BBSW to its advantage and paid a $50m penalty.

Separately, ANZ is yet to satisfy the prudential regulator its governance and compliance efforts are sufficient to warrant the lifting of an additional $500m capital overlay the bank has to hold.

A $500m capital overlay imposed on National Australia Bank in 2019 was removed in March after the Australian Prudential Regulation Authority became satisfied the bank had completed remediation and addressed governance issues.

Westpac is the only other big four bank to still have an additional APRA capital overlay. It is holding $1bn in extra capital due to compliance failings.