Royal Commission and the new threat looming around ANZ

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Australian Economy, Macro Economics

The new wave of the Royal Commission now seems to be engulfing Australia and New Zealand Banking Group Limited (ASX: ANZ) with the recently revealed criminal cartel. To add to this, a recorded video conference call between Bank’s group treasurer Rick Moscati and investment banks JPMorgan, Deutsche and Citigroup, following the bank’s $2.5 billion capital raising in 2015 is expected to set the benchmark revelations for the Australian Competition and Consumer Commission against the bank. While JP Morgan seems to be staying out of the trap, ANZ, Deutsche Bank AG and Citigroup are in line of fire.

ANZ Bank shares were seen to be slipping to a one-month low lately and the index of Australian financial stocks hit its lowest in last two years while ANZ particularly now disclosed about a criminal prosecution that it might face for alleged cartel conduct. ANZ shares fell as much as 2.4 per cent to A$26.55, their lowest since April 30, before edging higher to A$26.855 and still down 1.3 per cent on June 01, 2018. The stock traded at $ 26.750 as at June 04, 2018 and has slipped by 3.35% in last five days.

The share price fall came in spite of the Australian bank saying it believed it acted in agreement with the law and would defend itself in the case, which follows an inquiry by Australia’s corporate regulator. The Australian Securities and Investments Commission (ASIC) is investigating whether ANZ’s announcement of a surprise A$3bn share placement in 2015 should have stated that the joint lead managers snapped up about 25.5 million of the 80.8 million shares issued via the institutional placement.

The last few days thus have been a bit grave for the banking industry, with Australia and New Zealand Banking Group facing criminal cartel charges over $2.3 billion share issue, along with underwriters Deutsche Bank and Citigroup. This has compounded the already sad state of Australia’s biggest financial firms as they deal with daily allegations of misconduct at the public inquiry. ANZ is co-operating with the Australian Securities and Investments Commission with regards to the investigation in relation to the institutional equity placement. It involved the placement of approximately 80.8 million shares. The final issue price was determined through an “accelerated book-build” on August 6, 2015 at an underwritten floor price of $30.95. ANZ said ASIC is investigating whether the announcement made on August 7, 2015, about the completion of the placement should have also included that the joint lead managers were taking up approximately 25.5 million shares of the placement, representing only 0.91 per cent of total shares on issue at that time. However, this magnitude can’t be used to defend the cartel conduct as perceived up till now.

As per ANZ, the deal was conducted to allow ANZ to “more quickly and efficiently put up additional capital requirements announced by the Australian Prudential Regulation Authority, in particular the increase in average credit risk weights for major bank Australian mortgage portfolios to 25 per cent. The charges thus, are slated to involve cartel arrangements based on ANZ institutional share placement made in August 2015, as revealed by ACCC chairman. It is being alleged that ANZ and the individuals concerned were knowing about the conduct. The ACCC said it will not make any further comment until charges are laid.

While the video is to be investigated to look for the strategies ANZ sought to adopt with support from its investment banks on the sale of 25.5 million ANZ shares over a period of time, as the bank seemingly failed to find buyers otherwise; the financial sector has come under more scrutiny with this so called fourth criminal cartel case brought by ACCC, which pertains to areas not yet touched by any Australian court or not associated with any previous regulatory guidance notes.


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