How the ANZ trading scandal unfolded and what it means to the big-four bank

ANZ is grappling with a three-part crisis which could stretch into next year as it faces a probe led by a corporate cop desperate to shed a perception that it’s weak.

ANZ chief risk officer Kevin Corbally and chief executive CEO Shayne Elliott. Picture: Arsineh Houspian

The biggest markets scandal to hit ANZ in a decade started with a run-of-the-mill government bond sale.

It is now a three-pronged crisis that could stretch out well into next year as the corporate cop, desperate to shed its “toothless tiger” image, takes a forensic approach to the investigation.

In April last year, the arm of Treasury that deals with new bond issuances, the Australian Office of Financial Management, hired ANZ to manage a $14bn sale. From the start, something looked amiss. A very obvious “V-shape” in pricing for the 10-year bond sale went in ANZ’s favour (and against the government) just as the deal was executed.

Shortly after, the agency approached ANZ and asked about the unusual price move. These issuances are reviewed as a matter of course, but AOFM, it seems, didn’t get the answers it was looking for.

As the bank was fielding inquiries from the agency on the bond sale, it came clean on a separate, but related, issue: it admitted to the AOFM in August that it had substantially inflated the value of government bonds it had traded over a 12-month period – by tens of billions of dollars.

These inflated figures helped ANZ win a greater share of lead bond business from the AOFM over the previous months.

“Data errors were caused by a range of issues including process and data extraction errors on ANZ’s part. This resulted in the incorrect inclusion of transactions that should have been omitted as well as double counting of some transactions,” ANZ said this week, with Mr Elliott adding that he had personally apologised to AOFM chief executive Anna Hughes for the “unacceptable failure”.

In October 2023, weeks after ANZ told the AOFM it had inflated its bond turnover numbers, the agency brought the corporate regulator up to speed on the unusual pricing activity in the April bond issuance.

That same month two AOFM officials were treated to two lunches and a dinner, all on ANZ, within a single week. An ANZ spokesman said these events were part of normal customer engagement to discuss market dynamics. (AOFM officials regularly meet with staff at various banks and in that month met with CBA, Westpac and UBS, among others.)

Over at the Australian Securities & Investments Commission, meanwhile, what would turn into a hefty investigation spanning trading behaviour and potential market manipulation was just kicking off. Another blunder from ANZ didn’t help matters: while the bank informed the AOFM of its inflated bond turnover numbers in August, no such courtesy was afforded to the regulator. ASIC was left to hear it second-hand, from the agency, months later. ASIC kicked its investigation into higher gear in the new year, combing through past government bond transactions involving ANZ as it sought to find any evidence of wrongdoing in the bond placements.

ASIC under the leadership of chair Joe Longo is examining ANZ’s conduct. Picture: Jane Dempster

ANZ, somehow, was caught out at this point, seemingly not grasping how seriously ASIC was taking the investigation.

In May, the bank put out a four-line media release – on its website rather than the ASX – confirming the regulator was looking into its execution of the 2023 bond issuance.

In the months following, the scandal has morphed into a crisis in three parts: Alongside the inflating bond turnover numbers and allegations of market manipulation in the April bond issuance, serious conduct and behaviour issues have emerged within the dealing team.

At least two traders involved in the April bond issue have now been suspended, though ANZ has linked the disciplinary action to their conduct rather than any alleged market manipulation. The bank has since sacked traders and supervisors in its Sydney team, again over behaviour and conduct issues, some of which was alleged to have related to alcohol. Others have been suspended or issued with a warning. With all of these issues swirling around the bond trading desk, ANZ, right up to this week, was full of mixed messaging, downplaying events even as it said it was taking the allegations “with utmost seriousness”.

“When we do those deals, there’s always a review with our regulators. There was some unusual activity in the market at the time, so they’ve come and said, ‘Hey, ANZ, please explain’,” Mr Elliott told Perth radio station 6PR on Monday.

Some in the market expect the regulator, if it finds ANZ broke the law, to make an example of the lender, with smaller fines of the past just not cutting it in the new regime. The bank has been clear that its own investigation of the bond sale has uncovered no evidence of wrongdoing. But it does not have all the information ASIC has – nor can its own probe stretch as far or as deep.

ANZ does not want this investigation to drag on. The uncertainty alone is a bad look for the bank and its CEO. But the regulator is taking a forensic approach to the probe, meaning it could be many months, and likely next year, before there is any conclusion. This puts a major question mark over Mr Elliott’s tenure.

He is the longest-serving of the big-four bank CEOs, coming up on nine years in the job, and was widely expected to detail his plans to step down later this year.

Without a clear immediate successor and with the findings of the investigation looming, Mr ­Elliott may need to stay on at least another six to 12 months to right the ship. But if the regulator uncovers damning evidence of ­manipulation at the expense of the taxpayer, which would come less than 10 years after ANZ’s last major trading scandal, it would put intense pressure on Mr Elliott to stand down.

The influential Australian Council of Superannuation Investors also weighed into the scandal on Friday.

“Investors are concerned by recent allegations at the bank. It is now the board’s responsibility to assess what has occurred and determine accountability for executives,” said Ed John, ACSI executive manager of stewardship.

The regulator, meanwhile, is digging deep, interviewing not just current ANZ staff but also former employees.

The regulator will need to prove that manipulation is an active action that benefits either the traders or clients, and distinct from day-to-day market swings. What’s more, the intense political scrutiny means ASIC will need a watertight case to take to the ­Director of Public Prosecutions.