ANZ Moves to Settle Rate-Manipulation Allegations -- Update

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia-- Australia & New Zealand Banking Group Ltd. has moved to settle a lawsuit alleging the bank's past manipulation of a benchmark interest rate, breaking from two rivals also accused of rate rigging.

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The in-principle agreement with the Australian Securities and Investment Commission was announced as a federal-court case against three of Australia's largest lenders began in Melbourne. The judge agreed to a 48-hour halt to the trial to allow ANZ and the regulator to reach a firm agreement.

The break will also allow National Australia Bank Ltd. and Westpac Banking Corp. to assess their positions before the trial resumes. NAB had indicated that it could settle with the securities commission.

In a brief statement to the stock exchange, ANZ said it had reached a confidential agreement with the commission to settle a suit related to the setting of Australia's bank-bill swap rate, the primary benchmark for the country's financial markets.

No details of the proposed settlement were disclosed, but the bank said it would issue a further statement Wednesday. Based on the in-principal settlement, it said the financial impact on the bank would be reflected in fiscal 2017 financial results due to be released this week and would largely be covered by provisioning.

The regulator launched legal action against each of the banks last year, alleging market manipulation and unconscionable conduct for their involvement in setting the BBSW reference rate over a period between 2010 and 2012. It claimed the banks used products priced or valued off the BBSW to maximize profits or minimize losses.

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The banks each denied the allegations, which they said didn't involve any accusations of collusion.

Since 2012, the commission has been probing local and foreign banks over trading that dates back to 2007 in the BBSW. It came in the wake of rate-fixing scandals that engulfed some of the world's largest financial institutions, including the manipulation of the London interbank offered rate, or Libor.

Before late September 2013, the benchmark was based on submissions from up to 14 local and overseas banks. After eliminating the highest and lowest, the Australian Financial Markets Association calculated the mean of the rest. Since September 2013, the benchmark has used an electronic compilation of the midpoint in the locally traded market for reference bank bills, eliminating the need for submissions from the banks.

The regulator, in submissions to the court, cited extracts from internal phone calls and instant chat messages.

"Swaps desk will be pushing the rate set in 3 month higher tomoz so hopefully will work well for us," the commission alleged one ANZ trader said in one conversation. It claimed another of the bank's traders said in a message: "We are trying to push the rate set lower today...and then push it higher tomorrow."

In the statement of claim lodged with the court, the commission said it found 44 instances when ANZ allegedly engaged in market manipulation, unconscionable conduct and other unlawful behavior between March 2010 and May 2012. That action, it said, likely influenced the setting of the bank bill swap rate in a way to benefit ANZ over others.

ANZ rejected the allegations. At the time the suit was filed, it said the claims appeared to be based on a misunderstanding of the bank-bill issuance process and the operation of interest-rate risk management. The other banks have also denied acting unlawfully, and disagreed with the regulator's interpretation of employee conversations.

"It should be noted that while the ASIC cases against the three banks concern BBSW, ASIC's case against each of the banks and the underpinning facts are all different," a spokesman for Westpac said. The securities commission alleged Westpac traded in a way intended to create an artificial price for bank bills on 16 occasions between April 2010 and June 2012.

Asked last Friday by a panel of lawmakers in Canberra about the suit, NAB Chief Executive Andrew Thorburn said that while there wasn't yet a settlement with the regulator discussions continued despite not reaching an agreement during recent mediation. The case against NAB focuses on trading on 50 occasions between June 2010 and the end of 2012.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

October 23, 2017 00:58 ET (04:58 GMT)