Australian Securities and Investments Commission outgoing chairman Greg Medcraft has claimed vindication in his fight against the banks for allegedly rigging the bank bill swap rate (BBSW), after ANZ Banking Group agreed to an estimated $50 million fine and National Australia Bank appears set to settle the case.
ANZ reached the undisclosed settlement with ASIC late on Sunday night in a surprise development revealed by The Australian Financial Review on Monday morning and confirmed at the opening of ASIC’s epic trial against ANZ, NAB and Westpac that had been expected to run for four months.
NAB is the next big bank likely to settle with ASIC in its long-running case, with both sides also close to a deal on Sunday night and negotiations continuing on Monday after the cases against NAB and Westpac were stood down for 48 hours to finalise the ANZ deal and seek court approval for the settlement.
The ANZ deal still has to be signed off by the court on Wednesday and sources said the bank had admitted contraventions of the unconscionable conduct provisions in the law, but the precise nature of the admissions remain unclear with bank lawyers understood to have built in legal protections to try to prevent a wave of class actions.
The settlement provides vindication for Mr Medcraft less than three weeks before his term ends after being criticised by many, including some inside government and some regulators such as former ASIC chairman Tony Hartnell, who called the case “overkill“.
“I was inspired by the [Richmond] Tigers [premiership] win. Like them, I never give up,” Mr Medcraft, a long-suffering Tigers supporter, told The Australian Financial Review.
Sources said ANZ, facing 43 alleged contraventions of the law, was always keen to settle ASIC’s allegations that their traders manipulated the key benchmark rate after the Financial Review revealed the bank made an offer of more than $50 million last year, however, the bank was unwilling to admit wrongdoing.
“An in-principle agreement has been reached by the commission and the ANZ bank to settle the claims against that bank,” ASIC’s counsel John Karkar, QC, told the packed court hearing, which took just three minutes. “In the circumstances we request your honour that all matters be stood down for 48 hours to enable the ANZ documentation to be completed.”
NAB next to settle
Sources said ASIC’s case against NAB was equally strong, with the bank facing the most breaches, 50 contraventions of the law.
“We’re absolutely talking to ASIC on an ongoing basis about this issue,” NAB chief Andrew Thorburn told a parliamentary committee on Friday. “I’m hopeful that we can work through to get a successful conclusion,” he said.
In negotiations, NAB asserted that unlike the other two banks, their Treasury desk and trading desk were separate, which weakens ASIC’s case, but the regulator’s lawyers and NAB counsel Neil Young, QC, and team are seeking to iron out the final sticking points to an agreement.
Westpac on the other hand is facing just 16 contraventions of the law and their lawyers maintain they are prepared to fight the case alone. However, 24 hours is a long time in legal terms, and if NAB also settles it may be difficult for Westpac CEO Brian Hartzer and chairman Lindsay Maxsted to hold out.
Settlement talks were reignited at the weekend after hope of a settlement faded last week, following two days of court-ordered mediation this month with former High Court chief justice Robert French that took place in Melbourne’s Stamford Hotel.
Marathon talks Sunday
Mr Medcraft, a former investment banker, said he was directly involved in the “very long day” of talks on Sunday and was clearly relieved but cautious until the court signs-off on the deal. Mr Medcraft, who has faced claims of spending too much time travelling in the past six months, was meeting with new SEC chairman Jay Clayton to “cut a deal” on mutual recognition last week and claimed to be spurred on by criticism he had already checked out before starting a new job in Paris with the OECD.
ASIC was also accused of being been asleep at the wheel last week after not acting in the Rio Tinto accounting scandal when the Financial Conduct Authority in London banked a $US36 million fine.
Federal Court room 6K was packed with close to 100 silks, bank legal counsel, legal aides, bank flacks, journalists and interested onlookers on Monday morning, with ANZ’s media adviser saying his phone went into meltdown in the courtroom when the Financial Review published details of the ANZ settlement deal at 10am, 15 minutes before the hearing began.
ANZ said in a statement to the stockmarket that it would make a “more detailed statement” at court on Wednesday but “the financial impact to ANZ will be reflected in the 2017 financial full-year results [released on Thursday] and is largely covered by the provisioning held at 31 March 2017”.
The BBSW, which reflects short-term borrowing rates of the banks, is used to set prices on hundreds of billions of dollars of bonds, loans and derivatives that in turn influence the cost of corporate loans and even mortgages, but debate has raged about the extent to which end bank customers are affected.
ASIC commissioner Cathie Armour, who has overseen its investigation, which has run for 18 months, taken up 20 per cent of ASIC’s market supervision team and consumed most of its $89 million legal “war chest“, said it was largely won because of changes that meant it was now administered by the ASX with tighter guidelines and laws.
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