Heading into the weekend, it wouldn’t be surprising if the board of ANZ Bank is getting nervous about the growing bond trading scandal. They might be considering moves to try and cauterize the situation and end the string of bad news.
There are three allegations/situations being investigated at ANZ:
- The most serious is that ANZ’s trading team allegedly manipulated a $14 billion Commonwealth government bond auction in 2023.
- On Thursday, the bank admitted it submitted misleading bond trading figures to the federal government’s bond manager, the Australian Office of Financial Management (AOFM).
- There is an ongoing internal investigation into workplace misconduct in the trading team, with external lawyers involved. This has already led to changes in the trading team and other actions.
Media reports suggest the bank’s board may be forced to take action against the bank’s chief executive, Shayne Elliott, and other senior managers over the misleading trading data submitted to the Commonwealth government, and perhaps due to the investigations into its workplace culture.
On Thursday, Mr. Elliott took the story further than he had in previous comments, including a recent statement to a Perth radio station where he seemed to be minimizing the story. In a lengthy statement issued on Thursday, Elliott said he had delivered a “personal apology” for misleading the Australian Office of Financial Management about its bond trading activity. The bank is now investigating whether it should have reported the issue to the regulator sooner.
He did not explain why ANZ’s management didn’t take the reports seriously when they first appeared last year and last month.
The ANZ trading around the time of the $14 billion bond issue in 2023 is now the subject of an investigation by the Australian Securities and Investment Commission (ASIC). It relates to how the Commonwealth bond market futures traded around the time of the issue when the rate to the Commonwealth was to be set.
ANZ traders were tasked as the 'risk managers,' a key role in executing government bond sales, meaning they ran the process, including the bond market dealings that set up the pricing of the issue. It is claimed that shortly after the market price was referenced to set the rate for Australia's debt, it quickly changed. The interest rate on the government's debt was locked in at 3.635%, higher than what was available just moments later, potentially costing taxpayers tens of millions more in the process.
This was a surprise, especially to the AOFM, and since then, it has shunned ANZ in awarding roles in subsequent bond issues by the Commonwealth. ASIC was brought in, and both it and the AOFM want to know if ANZ was involved in dealings just before and just after the setting of the bond’s price and yield.
ANZ CEO Shayne Elliott’s statement on Thursday shed some light on the progress of the bank's own investigation into the bond transaction and the data reporting issues previously acknowledged by the bank. ANZ described the submission of incorrect monthly turnover data to the AOFM as an 'unacceptable failure.’ This data is important because the AOFM awards bond mandates to those financial groups with high levels of activity in bond trading, which is a lucrative appointment.
The bank is now assessing whether it should have reported the error to ASIC sooner, which is a point of contention for the board and management of ANZ. Elliott said the ANZ board would “lead a process to ensure consequences will be applied to senior executives, both past and present, including myself, where appropriate.”
ANZ also said it was 'cooperating fully' with ASIC's investigation, which may take months. However, the bank maintains it has not found any evidence of market manipulation during the 10-year government bond sale. Despite no evidence of misconduct, several employees have been suspended, terminated, and formally warned, including a management reshuffle within the Sydney dealing room that handled the $14 billion bond issue.
ANZ shares lost 0.6% yesterday and are down 1.5% in the past five days, starting when the reporting of the story increased in the Australian Financial Review.
