Australia & New Zealand Banking Group Ltd. reached a last-minute settlement with the nation’s securities regulator over allegations it rigged a benchmark interest rate.

The in-principle agreement was announced on the first day of a court hearing over allegations ANZ Bank, Westpac Banking Corp. and National Australia Bank Ltd. traders sought to manipulate the benchmark bank bill swap rate -- used to price more than A$10 trillion ($7.8 trillion) in derivatives -- to benefit their institutions’ trading positions.

The hearing will be delayed for 48 hours, Melbourne-based ANZ Bank said in a statement Monday. The cost of the settlement, which wasn’t disclosed, will be reflected in the bank’s full-year results to be released Oct. 26.

The bank will pay more than A$50 million to settle the case, the Australian Financial Review reported, without saying where it got the information. A spokesman for ANZ Bank declined to comment on the details of settlement.

ANZ Bank shares rose 0.3 percent in early Sydney trading.

The agreement with ANZ Bank may have implications for the hearings against the other two lenders, Australian Securities & Investments Commission legal representative John Karkar told the court.

The cases come after banks worldwide paid $9 billion in fines for rigging Libor, a practice that scarred the industry’s already-tainted reputation in the wake of the global financial crisis. On top of the latest litigation, Australian banks are facing an image problem of their own after a series of scandals criticized by politicians and the public.

‘Dirty Laundry’

“This is probably a smart move by ANZ Bank because it could help protect its brand and avoids the airing of its dirty laundry in public,” said Andrew Hughes, a lecturer in branding and marketing at Australian National University in Canberra. “It shows the pressure being applied by the government on the banks is having an affect.”

The regulator claims that in trades between 2010 and 2012, the banks abused their role as BBSW panel members and created an artificial market. It accuses the lenders of “unconscionable conduct,” taking advantage of counterparties and breaching their financial-service license duties.

Underscoring the risk of claims abroad, last year U.S. investment funds FrontPoint Asian Event Driven Fund Ltd. and Sonterra Capital Master Fund Ltd. filed a rate-rigging suit in New York against 16 banks -- including Westpac, National Australia Bank and ANZ -- which drew heavily on material presented in legal filings by ASIC. The banks are defending the case.

Messages, Emails

ASIC’s case is built around instant messages, emails and telephone calls from the banks’ own communication systems as part of its investigation dating back to 2012. The process for setting BBSW rates has since been overhauled to rely on market data rather than submissions.

Extracts of these often-profane conversations about rate-setting tactics were filed in court documents by the regulator as part of the claims process.

“We are trying to push the rate set lower today… and then push it higher tomorrow,” ASIC alleges one ANZ trader said, court filings show. In another it quotes a Westpac trader as saying their role is to “manage and monitor where BBSW gets set” and there may be cases where it’s “in the bank’s interest to try and decrease that rate or something.”

The lenders argue that individual traders didn’t have the ability to move the benchmark, considering the large number of participants. They also suggest that some of their quoted conversations don’t reflect the full exchanges, and say the regulator presented an overly simplistic view of how the rate was set.

Capitalizing on popular resentment against the nation’s banks, Prime Minister Malcolm Turnbull’s government imposed an A$6.2 billion annual levy on the sector in May. The opposition Labor Party, which has promised a wide-ranging inquiry into the sector, is riding high in the polls.

Source:
courtesy of BLOOMBERG

by Emily Cadman

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