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Invalid DateInvalid DateUpdated 4 years ago

AUSTRALIA THREATENS ANZ, DEUTSCHE AND CITI WITH CRIMINAL CHARGES OVER SHARE
ISSUE

By Paulina Duran, Byron Kaye

5 Min Read

SYDNEY (Reuters) - Australia is preparing criminal cartel charges against the
country’s third-biggest bank and underwriters Deutsche Bank and Citigroup over a
$2.3 billion share issue, in an unprecedented move with potential implications
for global capital markets.

The pending charges, which can carry hefty fines and 10-year prison terms,
threaten to change the way institutional capital raisings are handled, and do
further damage to the reputation of Australian lenders already mired in scandal.

The Australian Competition and Consumer Commission (ACCC) said federal
prosecutors would charge Australia and New Zealand Banking Group Ltd ANZ.AX, its
Treasurer Rick Moscati, the two investment banks and several more unnamed
individuals over the 2015 stock placement.

All three banks denied wrongdoing and vowed to defend the charges, with
Citigroup saying the regulator was effectively criminalizing practices long seen
as the norm in the financial industry.

“The charges will involve alleged cartel arrangements relating to trading in ANZ
shares following an ANZ institutional share placement in August 2015,” ACCC
Chairman Rod Sims said in a statement.

“It will be alleged that ANZ and the individuals were knowingly concerned in
some or all of the conduct.”

The third underwriter, JP Morgan, was not named by the regulator as a target and
declined to comment.

Australia has some of the toughest anti-cartel laws in the world, however the
decision to pursue criminal charges surprised experts given they are harder to
prosecute than civil charges.

The move was “almost unique” in Australian corporate history and indicated
prosecutors had a high level of confidence in their case, said Andrew Grant, a
banking expert at the University of Sydney Business School.

Related Coverage

Citigroup denies criminal cartel allegations expected in Australia

Deutsche Bank says it will defend itself against cartel charges in Australia

See more stories

ANZ shares were 2 percent lower on Friday afternoon, while other banks were down
less than 1 percent. The broader market .AXJO was down 0.2 percent.

Rating agency Moody’s said on Friday the charges were “credit negative” for ANZ.

THE CAPITAL RAISING

In 2015, Australian banks were under pressure to meet new capital requirements,
prompting ANZ and larger rival Commonwealth Bank of Australia CBA.AX to raise a
combined A$8 billion in a single week.

The lead managers did not disclose they kept about 25.5 million shares of the
80.8 million shares issued, ANZ said on Friday, a fact that is being
investigated separately by the corporate regulator.

The Australian Shareholders’ Association said the pending charges should trigger
reforms to capital raising procedures to ensure greater transparency and prevent
investment banks profiting from share sales while retail investors have their
holdings diluted.

As new bank equity flooded the market, ANZ shares closed 7.5 percent lower on
Aug. 7, 2015, when the Melbourne-based lender announced it had completed the
institutional component of the raising, according to a Reuters analysis.

ANZ shares took over a year to recover to their pre-raising value of A$32.58.

FILE PHOTO - The logo of the ANZ Banking Group is displayed in the window of a
newly opened branch in central Sydney, Australia, Aprl 30, 2016. REUTERS/David
Gray/FIle Photo

The joint underwriters allegedly reached an understanding on the disposal of
shares, prompting the cartel criminal charges, Citigroup C.N said on Friday.

“Underwriting syndicates exist to provide the capacity to assume risk and to
underwrite large capital raisings, and have operated successfully in Australia
in this manner for decades,” the New York-headquartered investment bank said.

Criminal charges for share underwriters had never been considered by an
Australian court and had never been addressed in guidance notes published by
regulators, it added.

“If the ACCC believes there are matters to address, these should be clarified by
law or regulation or consultation,” it said.

Deutsche Bank DBKGn.DE said it was cooperating with investigators and took its
responsibilities "extremely seriously".

Caron Beaton-Wells, a professor of competition law at University of Melbourne,
said the ACCC and the prosecutor would only bring criminal charges if they were
satisfied they would be proven.

“The ACCC has long said ... that the most potent deterrent for cartel conduct is
a potential jail term,” Beaton-Wells said.

“I don’t think it’s a sudden decision to ramp up, just that it’s taken a long
time to find conduct for proceeding criminally.”

The development compounds a publicity nightmare for Australia’s biggest
financial firms as they grapple with almost daily allegations of wrongdoing at a
public inquiry which is scheduled to run to the end of the year.

Barristers for the inquiry have raised the prospect of criminal charges against
the country's top wealth manager, AMP Ltd AMP.AX, over allegations it misled the
corporate regulator.

No. 1 lender Commonwealth Bank is also facing a separate civil lawsuit alleging
thousands of breaches of anti-money laundering protocols.

The allegations against some of Australia’s biggest companies and most-traded
stocks have sparked several class action law suits designed to compensate
investors who lost out as a result of poor banking and fund manager practices.

Reporting by Paulina Duran and Byron Kaye in SYDNEY; additional reporting by
Jennifer Hughes; writing by Jonathan Barrett; Editing by Stephen Coates

Our Standards: The Thomson Reuters Trust Principles.

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