ANZ settles rate-rigging case, NAB close to a deal

ASIC has settled Federal Court litigation over alleged rate rigging with ANZ, and is close to a deal with NAB.

ANZ will admit wrongdoing and pay a penalty. Picture: Hollie Adams

The corporate regulator has settled landmark Federal Court litigation over alleged rigging of the key BBSW interest rate benchmark with one of the banks in its sights, ANZ, and was last night close to a deal with a second, NAB.

Westpac, the third bank the Australian Securities & Investments Commission has accused of rate rigging, was yesterday also in talks with the regulator, although these were brief and broke up without any resolution.

As part of its deal ANZ will admit wrongdoing, which a source close to the case said related to unconscionable conduct, and pay a penalty, believed to be between $50m and $60m.

The admission of wrongdoing was crucial to outgoing ASIC chairman Greg Medcraft, who has consistently maintained the banks needed to “plead guilty” to end the case.

It is believed the terms of the deal provide some protection for the bank against its admission of wrongdoing being used against it in class action proceedings while at the same time preserving the penalty provisions of the law under which the regulator brought its action.

The settlement requires the approval of the court.

Spokesmen for the ANZ and ASIC declined to comment. ASIC launched the cases, which relate to conduct between 2010 and 2012, last year following an investigation into the BBSW sparked by overseas probes into the rigging of similar rates, such as Britain’s LIBOR, that resulted in gigantic fines.

Both benchmark rates are important because they are used to set the cost of money borrowed by businesses.

In its lawsuits against the banks, ASIC alleged they engaged in unconscionable conduct and created an artificial price for the BBSW to their advantage — which could help inflate profit — while potentially disadvantaging borrowers and other market participants who had taken an opposite position on the benchmark.

Unlike some overseas cases, ASIC did not allege there was any collusion between the banks.

ANZ’s settlement was struck late on Sunday night, the day before an eight-week trial in the Federal Court was due to begin, and announced to the court during a six-minute hearing yesterday morning.

Counsel for ASIC, John Karkar, QC and counsel for ANZ, Alan Archibald, QC, told the Federal Court that the agreement needed to be documented and asked for all three cases to be stood down for 48 hours to enable the paperwork to be completed.

Justice Jonathan Beach said he was willing to grant the time even though it might cause difficulties for the other cases.

“I’m not entirely convinced that that is necessarily so, but I will hear you further about that on Wednesday, and also the possible question that a separate judge may deal with the ANZ settlement question,” Justice Beach said.

“And I as a trial judge could proceed with the Westpac and NAB proceedings forthwith.”

ANZ’s rivals are now keen to see the terms of the bank’s deal with ASIC to understand how it provides protections against being used in class actions brought by unhappy customers.

Talks between NAB and ASIC, which have been under way for days, continued yesterday after the case was adjourned.

One of the remaining issues is believed to be that at the time NAB is alleged to have attempted to rig the BBSW it had a different trading desk structure than the other banks against which ASIC has mounted legal action.

NAB’s trading desk and its treasury desk had separate reporting lines and separate balance sheets — a measure designed to guard against conflicts of interest.

However, NAB has been confronted with 50 alleged breaches, edging out ANZ’s 44.

ASIC alleges just 16 breaches by Westpac.

ANZ’s settlement also protects it from further public exposure of aggressive trading room culture, which has already been thrown into the spotlight by the case.

Through the legal action, ASIC has put on the public record reams of obscenity-laden emails and phone and chat transcripts in which traders joke about the BBSW being rigged.

The documents also show that discussion of rate-rigging was widespread within the banking industry, with smaller institutions complaining to NAB that they were “screwed” in the process.

In another case, an ANZ trader said he wanted to “ram the rate set” to push the BBSW as high as possible.

The big banks have held out long after overseas institutions struck settlements with the regulator.

In 2013 and 2014, ASIC accepted enforceable undertakings from UBS, BNP Paribas and the Royal Bank of Scotland.

The three banks also made donations of $3.6m towards financial literacy programs. Each of the three reported itself to ASIC ­following investigations by US and British authorities into LIBOR rigging.

The method for calculating BBSW was changed in 2012 and was again tightened in January when supervision of the benchmark was taken over by the ASX.