ANZ trading woes could trigger firestorm at the top

Beyond the bond-trading desk, if financial regulator ASIC uncovers more problems within ANZ then chief executive Shayne Elliott could find himself on shaky ground.

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

There are three distinct but serious issues which have collided around ANZ’s bond trading desk.

And if any more is uncovered by the financial regulator they have the potential to engulf chief executive Shanye Elliott and force the bank’s board to look outside to find his replacement.

It’s not at that stage. Yet. However, a dotted line between scandals and missteps inside the unit which should be doing the uncontroversial job of handling bond sales on behalf of Canberra, is pointing to far wider problems.

And even though Elliott insists the three issues have been uncovered, cauterised and apologised for, an Australian Securities and Investments Commission investigation is still live.

And it’s right to ask that if this was happening in a sleepy corner located on the edges of ANZ’s Sydney trading floor, what else is happening in ANZ’s institutional business?

ANZ last week sacked as many as four traders and supervisors in its Sydney team over behaviour and conduct issues last year and some of which was alleged to have related to alcohol. Other traders have been suspended or have been issued a warning.

Through its investigation conducted by two law firms, the bank interviewed nearly 50 people, before sacking those involved at the centre.

ANZ has since brought in staff from its global operations to beef up supervision of the trading unit. While it has now acted, it has been slow to respond.

Then the stuff-up. Through that investigation, ANZ last year stumbled on a spreadsheet error that was resulting in double counting of bond transactions going back as much as five years.

ANZ CEO Shayne Elliott. Photograph by Arsineh Houspian

This significantly flattered the bank’s record on bond transactions and, by using these inflated figures, ANZ was able to win or secure a greater share of lead bond business from the AOFM, Canberra’s financing arm that sits within Treasury.

Elliott has since called the boss of the AOFM and apologised for potentially misleading data, which, at worst, is sloppy behaviour.

Finally, the most serious of incidents involve allegations from rival banks and something ASIC is investigating – claims of market manipulation around a 10-year Treasury bond transaction last year.

ASIC’s focus of the claims is around a sudden “V-shape” in pricing while ANZ was leading the bond sale.

Not only have ANZ traders been interviewed, but the regulator has been gathering evidence from traders at other banks that were also involved in the trade.  

Elliott gets proactive

With ANZ’s board now demanding answers, Elliott has attempted to get on the front foot by putting in external auditors and law firms to analyse the trading data around the transaction.

The findings that have come back have so far suggested that no wrongdoing took place – and it is significant the CEO has been prepared to say that publicly, although with qualification.

By no means is ANZ is out of the woods. The bank doesn’t know what ASIC knows or is likely to uncover, and the regulator could take several months through its investigation. ASIC too can compel people to give evidence under oath.

With an ASIC probe under way, it doesn’t look good for Elliott.

Politicians and Canberra’s finance bosses were rightly furious over the PwC scandal that erupted last year, where the auditing firm was found to have deliberately used confidential government information on tax to actively win new business.

Regulators like ASIC are now on high alert for bad behaviour from those that do business with government. ASIC was frustrated by the PwC scandal as partnerships fall outside its remit.

The trading desk under focus in ANZ is tiny relative to the bank’s overall trading business of foreign currency, bank bills and bonds. Last year the AOFM desk generated about $10m in revenue a year.

However, at its most simple level if the market manipulation claims are proved, then that smacks of a bank seeking to profit from the taxpayer by breaking the law.

Even if the allegations don’t stack up, the reputational damage around trading floor culture means Elliott is almost certain to get a financial hit to his bonus. So too the boss of the institutional business, Mark Whelan, will feel the financial pinch.

However, this could get much worse – and quickly – for Elliott, Whelan and the bank, if ASIC uncovers trading behaviour which broke the law.

This goes straight to culture, risk taking and trading oversight, and Whelan’s position would be untenable.

The institutional boss is widely seen as the successor to Elliott, who is about to enter his ninth year as chief executive, making him Australia’s longest serving of the current bank bosses.

Well-regarded ANZ New Zealand boss Antonia Watson is a distant second but is said to be reluctant to commit to a wholesale relocation to Australia to see the role through. Others, including CFO Farhan Faruqui, previously ran ANZ’s Asian-based operations.

Later this year had been firming as the timing for Elliott to outline plans to step down.

Without a clear immediate successor, chairman Paul O’Sullivan will be forced to look outside – a process that could take six to 12 months and, for shareholders, mark the beginning of another ANZ strategic U-turn.

Originally published as ANZ trading woes could trigger firestorm at the top