Big win for Medcraft as banks blink in rate rigging case

The ASIC chair has scored a victory, with ANZ agreeing to a settlement, and NAB close to a deal, in the rate rigging case.

Greg Medcraft. Illustration: Krygsman

ASIC may not be the fastest cop on the beat but outgoing boss Greg Medcraft scored a significant victory on Monday, on the eve of his departure, with ANZ blinking and agreeing to a conditional settlement in the BBSW case.

ANZ reached an agreement with ASIC Commissioner Cathie Armour on Sunday afternoon and confided in the Federal Court yesterday it had come to a potential deal.

Final details are due to be unveiled tomorrow, ahead of the bank’s annual profit release on Thursday. But the deal came just as the bevy of high-priced silks were ready to get started in one of the biggest trials in corporate Australian history.

As is the way with banks now, as soon as one of the majors says it will do something, the others say “oh, we were about to do that”.

When one of the banks unveils a fee cut or another initiative, it is remarkable how the others are just about to do the same thing.

Now NAB suggests it is also heading for the settlement window, while Westpac says it is fighting on and will be in court tomorrow.

From ANZ boss Shayne Elliott’s perspective, now is the time for the bank to get on with business and re-establishing trust with customers.

Politically and from a customer-sensitive position, this deal looks like one of those occasions where the bank had to act, even if it handed the moral ground to ASIC.

The corporate cop would no doubt reply that the strength of its case was behind the capitulation.

A potentially long-running court case airing dirty linen on trading secrets was not the best backdrop for that process and Elliott blinked with the aim of starting afresh.

Elliott is the incoming head of the Australian Bankers Association and has also maintained a line of independence from the other big banks. This is best shown by his deal with Apple Pay, which until now the other banks have refused to support.

The settlement is significant in that the bank will admit to attempting unconscionable conduct even if the settlement, around the $60 million mark, is tiny against Thursday’s expected profit of around $7 billion. Until now the bank maintained it wouldn’t admit to knowing what day of the week it was.

And the fine should be matched against 2016 year penalties collected by ASIC, which totalled less than $5m. In short, if it comes in as advertised it will be the biggest corporate penalty since the GFC.

By contrast, USand European regulators have levied fines totalling $US320 billion since the crisis.

The in-principle settlement comes as Financial Services Minister Kelly O’Dwyer released a discussion paper canvassing a radical rewrite of Australia’s corporate penalty regime, including setting maximum levels as a percentage of sales or profits, plus higher overall charges.

For Medcraft, on the eve of finishing his 6 ½-year term as chairman, the BBSW settlement completes a trifecta, with O’Dwyer also mandating user-pay funding for the regulator and the increased penalties he has long sought.

That said, the victories should be put in the context that this investigation has run since 2012 — in the wake of the 2012 Britain’s Libor market rigging scandal which snared Barclays and other banks.

Big win for ASIC chairman Greg Medcraft. Picture: Stuart McEvoy

The ANZ case was confirmed in 2014 and in that time the Monetary Authority of Singapore has wrapped up market rigging cases in its jurisdiction, after alleging cartel-like behaviour, which resulted in ANZ and Macquarie Bank paying combined fines totalling $15m.

Justice takes its time in Australia, and no-one could accuse ASIC of being the fastest plod on the beat. However, Medcraft has withstood strong pressure from all three banks involved, who have maintained he had no case.

The politics swung sharply against the banks over the last two years. And Medcraft remained firmly convinced he not only had a strong case but one which directly hits the punter on the street, because he or she has to pay rates ultimately set by the BBSW.

While Westpac maintains it will fight on, the settlements with ANZ and NAB remove one potential headache for incoming ASIC boss James Shipton. There were only 16 charges against Westpac, 50 against NAB and 43 against ANZ.

The case had its unusual aspects because — unlike the MAS case in Singapore and the Libor case, where the allegations were agreements to fix markets — ASIC was alleging the individual banks used market strategies to shift rates on their own.

This wasn’t always possible, but no matter — now a settlement is on the table, ASIC can let the dust settle, and Medcraft can head off to the OECD next month with his legacy fixed.

Kogan on a tear

At a time when some retailers are crying poor with slow sales, Ruslan Kogan is on a tear, with revenue growth of 35.9 and gross profit margins up 30 basis points to 18.2 per cent.

Kogan’s listed vehicle was worth $426m on Monday, up from $148m at its float in July last year. And given he owns 45.2 per cent of the company he is looking good.

The model is to sell house brand and branded goods to his more than one million active customers and 6.5 million customer base.

On a tear: Ruslan Kogan.

Canaccord figures revenues will grow from $289.1m to $358m this year, with earnings before interest and tax up from $10.7m to $17.9m.

Based on Monday’s quarterly cash flow numbers, cash on the books stood at $25.8m and inventories ready for the Christmas rush at $52.5m.

Blow to Vodafone

Telstra charges a premium of around $1.4 billion based on its superior mobile network, which was built in part on government subsidies but largely thanks to its own strategic planning. The ACCC Monday backed Telstra and Optus’s view of the world in rejecting Vodafone’s push to get the mobile network declared, forcing them to negotiate on a deal.

The regulator concluded there was no compelling evidence to suggest that if the network was declared customers would be better off and competition increased.

Vodafone has taken the matter to court, arguing the ACCC erred in not specifying what service it was or wasn’t declaring, but the ACCC has decided to proceed to a final decision.

This is because either way, if Vodafone wins the decision will be void.

The battle nominally is about the bush, but the real game is in the big cities, with punters demanding full national coverage.

The decision came out as Vocus’s Geoff Horth put his New Zealand business on the market for around $550m, for a business earning around $57.5m on revenues of $323m.

The third national operator in New Zealand should attract some buyers, which will help Horth cut a $1bn debt load as he slowly but surely puts Vocus together again.

All this on another day of turmoil for the NBN as it fast-forwards its rollout which has caused retail havoc on the network.

NBN wants to cut its stated internal rate of return closer to 1.75 per cent, from the present 3.7 per cent, which is based on eight million users in 2020 on $52 a month in revenues.

Prime Minister Turnbull led the brigade in rewriting history on the NBN, which was prompted by Telstra’s refusal under Sol Trujillo to lead the fibre optic rollout.

In New Zealand and other major markets the rollout has come at a slower pace, led by the incumbents, but in Australia Telstra said “no” and then demanded billions to compensate for its network.

If history could be rewritten the NBN wouldn’t be the ideal model, but the prevailing circumstances are worth remembering, just as the present multi-technology plan is the best alternative.