Westpac breaks ranks with other banks by defending traders’ actions

Westpac trader Colin Roden’s fear was that borrowers would find out bankers were ‘trying to stitch people up’.

ASIC chairman Greg Medcraft. Picture: Stuart McEvoy.

In 2010 Westpac trader Colin Roden told a colleague his “biggest fear” was that borrowers would find out bankers were “trying to stitch people up” by rigging a key interest rate benchmark and this could destroy the sector’s reputation among the “crowd” of regular Australians.

That fear will be tested by Westpac in court next week as the nation’s second bank refuses to back down from a suit brought by the corporate watchdog. ANZ and National Australia Bank were also involved but pulled out all stops to settle before the case went before the Federal Court, and into the ­nation’s newspapers and evening news bulletins.

Just hours before the trial was set to start in Melbourne last Monday, ANZ struck an in-­principle agreement with the Australian Securities & Investments Commission over allegations the bank’s traders manipulated the key interest rate benchmark for interbank lending — the bank bill swap rate (BBSW).

The settlement is expected to come with an admission of wrongdoing and a fine upwards of $50 million, representing a major win for outgoing ASIC chairman Greg Medcraft.

NAB has also been in discussions with ASIC to settle, with most insiders pointing to the threat of “trial by tape recorder” presented to the already beleaguered biggest banks.

Staring down the prospect of a 12-week trial, NAB and ANZ worried the renewed focus on conduct issues inside the banks could add to the threat of a royal commission that hovers over the sector.

Westpac, however, is still willing to risk it — despite the discussions between its traders being among the most colourful of the transcripts lodged in statements of claims against the lenders. Westpac faces fewer allegations of breaches than the other lenders.

These conversations, littered with the obscene language often used on trading room floors, are a key plank of the watchdog’s crusade against the banks’ alleged ­manipulation of the BBSW — a widely used reference rate for business lending and investment.

Bank bills can trade throughout the day but until recently the reference rate was calculated during a five-minute window about 10am each day. ASIC claims the banks were dumping or withdrawing cash during this window in a bid to push the rate higher or lower to boost their profits.

Changes in the rate affected the price of credit and also could have had a material impact on the price of hundreds of thousands of home loans.

“Corporates and people who don’t know who get stiffed by ­people and then in two years’ time there’s some inquiry that you’ve been f..king with this rate set and it’s cost them all 10 basis points,” Westpac’s Mr Roden told a Mr ­Arkins, according to a transcript of the conversation lodged with the court.

“It’s the unprofessional, ­unknown random, you know with $50 million of debt that’s getting stitched by his bank getting a 15th rollover that at some point wakes up and has a dummy spit, and quite deservedly so,” he said, ­according to the claims filed in court. “That’s my biggest fear.

“That’s our biggest concern — it’s more our reputation amongst that crowd of people rather than the interbank professionals who, you know, who probably spend half their life trying to stitch ­people up.”

While ANZ and NAB are ­attempting to douse the allegations before they hit court, Westpac is willing for the corporate regulator to play highly contentious conversations between its staff members before court.

In its defence statement, Westpac said a conversation between another of the bank’s traders, Zac Sharma, and Mr Roden had been taken out of context and was ­related to other trading activities. In that exchange, Mr Roden tells his colleague he was “going to f..k them”. “I’m going to f..k the rate set right on the 10th.”

In another, Mr Roden tells fellow trader Sophie Johnston, in a discussion about the rate set, his conduct was “completely wrong”. “I knew it was completely wrong but f..k it, I might as well. I thought f..k it. We’ve got so much money on it, we just had to do it, right?”

ASIC alleges Westpac engaged in unconscionable conduct and created an artificial price for the BBSW 16 times. It alleged 44 similar breaches against ANZ and 50 against NAB.

ANZ chief executive Shayne Elliott, who is seeking to improve the culture in the banking sector in his new role as Australian Bankers’ Association chairman, has successfully avoided the airing of compromising discussions ­between his staff.

According to a separate statement of claims, ANZ senior balance sheet trader Jason Pritchard told colleague Mark Budrewicz he wanted the “rate set as high as f..kin’ possible” and that it “represents $3m of f..kin’ income to us”.

“If we can f..king jag, you know, three points on $5 billion, that’s half a million dollars just bang, done. People don’t understand half a million dollars,” Mr Pritchard said.

“We just need to f..king do that. Especially the f..king rate sets.”

NAB, which is believed to be arguing its trading and treasury desks were differently structured than the other banks’ and therefore designed to guard against conflicts of interests, also has questionable chat logs strewn throughout ASIC’s claims.

NAB traders Luke McBride and Simon Barraket discussed a “fierce” rate set where they said NAB was pushing the rate higher and “Westpac and a few other cronies” were “trying to downset it”.

NAB traders David Page and Terrence Maxted discussed a colleague Paul who, Mr Page said, “failed at the rate set and he’s come crawling back”. “I wouldn’t call it redeeming himself,” he said. “He’s f..ked up big time.”

In some of his last comments as ASIC chairman, Mr Medcraft told a parliamentary joint committee yesterday that firms “really need to think about their conduct risk culture”.

“You want to have the right culture. Believe but verify. You’ve got to verify. Very often we see poor conduct where risk management has contributed to that,” Mr Medcraft told MPs.

He said businesses needed to make sure “conduct risk is dealt with at the business level” and that they had “a strong compliance function at the front line” that doesn’t fall down.