SINGAPORE (Reuters Breakingviews) - An Australian cartel case bodes ill for equity capital markets bankers. Citigroup, Deutsche Bank and their client, Australia and New Zealand Banking Group, are likely to face criminal charges over how they handled leftover stock in a 2015 share sale. If authorities succeed, that could inspire foreign peers.
Australia’s financial sector has already been bruised by a series of scandals, and is enduring an in-depth official investigation, known as a Royal Commission. But this latest action from the antitrust authority and prosecutors was still a shock. Underwriting practices have not previously been targeted by regulators, and although Australia introduced criminal sanctions for cartels in 2009, there have been few cases to date.
There are no detailed charges yet, but the case hinges on how underwriters offloaded unsold shares. Any agreed path to sell down the stock, even if the intention was to reduce volatility, could have breached strict laws against colluding to limit the supply of goods or services.
That is an aggressive interpretation of the situation. By definition, banking syndicates work together. And if the main offence was not crashing the client’s stock price by dumping excess stock in a rush, that would be more like good customer service than malign market distortion. Citi argues there were always plenty of ANZ shares available to buy and sell in the market. That is common sense – although that might not matter under a literal interpretation of the law.
More broadly, this amounts to cracking a banking nut with a sledgehammer. Change could have easily been effected with explicit guidance to banks on what is now seen as best practice, rather than threatening individuals, including ANZ’s treasurer, with jail terms of up to 10 years.
That said, there may be something particularly problematic about this deal. Prosecutors would not be preparing charges unless they believed they have a strong case. And the Australian Financial Review says there is a recorded video conference call. That might provide a smoking gun.
In the worst scenario for banks, this could prove to be like LIBOR manipulation: apparently unremarkable behaviour that becomes internationally toxic. Competition authorities elsewhere will be keenly watching to see how strong the legal case is here, and considering whether other equity deals could fall foul of their regimes, too.
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