By Gareth Vaughan
The integrity of bond markets on both sides of the Tasman is at stake as regulators probe issues of potential market manipulation, Australian Financial Review senior reporter Jonathan Shapiro says.
Shapiro is covering the Australian Securities and Investments Commission (ASIC) probe of the ANZ Group's role in a A$14 billion 2023 Australian government bond sale, and taking an interest in the Financial Markets Authority's investigation into possible manipulation in New Zealand's wholesale interest rate and government bond markets.
Speaking in the latest episode of the Of Interest podcast, Shapiro says the ASIC probe of ANZ boils down to allegations of interest rate rigging, allegations of providing false information to the Australian Office of Financial Management (AOFM), which manages the Australian government's debt portfolio and hired ANZ as risk manager for the bond issue in question, and workplace culture issues.
"What is alleged is in that role they [ANZ] might have moved the market in their favour and made trading profits. And those trading profits came at the expense of the [Australian] government because ultimately their alleged actions forced up the government bond [borrowing] rate. We calculated about five basis points extra ... and that's for $14 billion of debt over 11 years," Shapiro says.
ANZ Group CEO Shayne Elliott says the bank itself has found no evidence misconduct or market manipulation by ANZ in connection with the bond issues cost the government financially. Elliott also says whilst some information provided to AOFM may have been incorrect, this was a mistake, rather than a deliberate act. Meanwhile, three traders have left the bank and a fourth has been warned.
Shapiro says what's being alleged is very serious and everyone in Australia has an interest in the outcome because the government was ANZ's client.
In New Zealand the Financial Markets Authority (FMA) says it's investigating two complaints about possible market manipulation in NZ's wholesale interest rate and government bond markets. ANZ NZ says it hasn't been contacted by the FMA in relation to these complaints.
Shapiro says market integrity is absolutely critical, with pension funds, sovereign wealth funds, central banks and other investors trading government bonds.
"They don't want to be on the other side of of any funny business...it's extremely important that these markets are trustworthy."
Because they're viewed as the risk-free rate of return, government bond rates underpin the whole market, Shapiro notes.
"So regulators should absolutely be looking at any issues in these markets and making sure that they're transparent, that they're clean, and that there's nothing untoward going on. And one would think that participants in that market, especially the big banks of countries like New Zealand and Australia, would have an interest in making sure that, firstly, they're doing everything they can for their client, the government, but also making sure the bond market works as efficiently as it can."
The ANZ Group has been left out of the last three Australian government bond issues, Shapiro says.
In the podcast audio Shapiro also talks about why he refers to the ASIC probe as the biggest scandal in the ANZ Group's 182-year history, goes into detail on the three key issues at stake and the ANZ Group's responses, what's at stake for the bank potentially financially and reputationally, as well as for New Zealander Elliott, possible similarities with what's at issue in the FMA investigations, how the Aussie banks have become more politically savvy, and more.
*You can find all episodes of the Of Interest podcast here.
7 Comments
No these are criminal charges if proven in court, peoples careers will be over here. And ANZ will be fined due to lack of suitable controls enabling the actions. If could get very expensive as regulators have lost patience since the royal commission on these matters.
My understanding is that the Govt bond trading desks of the big 4 really don't make much money, less than a good McDonalds franchise. They are relatively inconsequential in that clients want to deal with global banks who can price a full suite of fixed income and end users dont have room for specialists. Also, our banks have tiny risk limits.
This is a very important case as ASIC have not been able to land a blow against the banks in this area.
Just for a contextual comparison:
JPMorgan earned a record revenue of around $1 billion in 2020 from trading, storing and financing precious metals, vastly outperforming rival banks. Trading and transporting physical precious metals makes the bank about $30 million a year on average.
In 2020, JPMorgan agreed to pay over $920 million in fines and victim compensation to settle U.S. market manipulation probes into its precious metals and Treasury market trading.
So why does JPM bother manipulating PM markets? Not easily answered but the conspiracy theorists will tell you that the the value accrued to (and favors for) JPM and its mates are very important. .
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