South Australian government demands answers from ANZ over its bond trading

Hot on the heels of Queensland halting business with ANZ, now the SA government has demanded certainty from the scandal-engulfed bank over trades in the state’s debt.

ANZ chief executive Shayne Elliott and ASIC boss Joe Longo.

The South Australian government has ordered ANZ conduct a review of trades in its bonds over the past financial year.

The state is examining the bank’s role in placing its burgeoning debt load amid a scandal that risks engulfing ANZ’s valuable banking relationships.

Sources indicated the South Australian Government Financing Authority has sought assurances from ANZ – one of several banks on the state’s dealer panel for its bond program – due to concerns over the bank’s conduct and a looming investigation by the corporate regulator.

The Australian Securities and Investments Commissions is investigating ANZ over allegations its traders manipulated bond markets ahead of a $14bn bond placement on behalf of the federal government in April last year.

Sources indicate SAFA reviewed ANZ’s conduct around recent issuances, noting that although no evidence had been found that interest rates had been manipulated, the authority had requested the bank conduct an analysis of recent trading in its bonds.

SAFA has also sought assurances from ANZ over turnover data provided by the bank regarding South Australian government bonds traded in the secondary market.

The bank has also been put on notice to advise South Australia of the outcome of any internal and external investigations being conducted into a number of matters, including an internal probe into culture, the review into SAFA bond trades, and ASIC’s investigation.

SA Treasurer Stephen Mullighan told The Australian the state government was “aware of and will continue to monitor developments with respect to ASIC’s investigation”.

SA is preparing to increase its debt load to fund key infrastructure projects across the state.

South Australian Treasurer Stephen Mullighan. Picture: Dean Martin

According to SA’s latest budget debts is expected to grow by at least $13bn over the coming three years – from about $26bn to almost $38bn by 2027.

ANZ, which has played a lead role on past debt issuances by SA, was last given charge as joint lead manager of a bond issuance by the state in October.

However, the state has issued a number of bonds since.

ANZ also banks SA through the state’s whole-of-government transactional banking arrangements, which are managed separately from SAFA’s bond program.

ANZ’s business with the Queensland government has already been put on hold. Bond market sources say the bank is being frozen out of other major deals in response to ASIC’s investigation.

QTC, the Queensland government agency that places the state’s $147bn debt book, said it had frozen ANZ from any syndicated bond transactions while inquiries were continuing.

“QTC is aware of the ongoing investigations of ANZ’s Australian markets business,” a spokeswoman said.

NSW’s TCorp said ANZ was last used as a joint lead manager on May 10 this year.

“We review all our transactions as part of our usual business practices,” a spokeswoman said.

ANZ last week revealed it had stood down, warned, or terminated several employees in its markets team due to an internal investigation into “inappropriate conduct and behaviour”.

The bank told investors chief executive Shayne Elliott had phoned the boss of the Australian Office of Financial Management to apologise for the scandal.

Hostplus CEO David Elia said the scandal “directly impacts the returns for investors”.

“Reputation damage associated with these types of scandals can erode trust in the institution,” he said.

“For investors, this means potential long-term declines in stock prices as the company struggles to rebuild its reputation.”

Hostplus chief executive David Elia. Picture: AFP

This latest scandal comes almost seven years after ANZ reached a $50m settlement with ASIC in 2017 over another matter.

The bank signed an enforceable undertaking with ASIC that required the bank to implement a training program for staff and bring in PwC Australia as an independent expert to assess the bank’s compliance over three years.

“Increased scrutiny from regulators can lead to fines, sanctions, and stricter regulations. This can increase operational costs for the bank, again affecting profitability and returns to investors,” Mr Elia said.

“The issue can trigger negative market sentiment, not just towards ANZ but potentially towards the broader financial sector, influencing investor decisions and market dynamics.”

ANZ shares closed down 1 per cent on Tuesday, losing 30c to close at $28.52.

Morgan Stanley analyst Richard Wiles has downgraded the bank, saying ANZ faced near-term earnings challenges.

“We believe institutional banking revenues have peaked, the migration to ANZ Plus will impact deposit pricing, Australian mortgage growth is slowing, NZ has a more modest growth outlook than Australia, potential provision releases and buybacks are smaller than peers, and dividend growth is likely to be modest,” he said.