Wednesday, April 6, 2016

Westpac to "vigorously defend" rate rigging allegations; trader says actions "completely wrong"

Westpac has become the latest of big four banks to become embroiled in a financial scandal.

The corporate watchdog ASIC is taking Westpac to court alleging it rigged a key market interest rate over a two year period - another dent in the credibility of the banking sector.

The scandal confronting Westpac follows similar rigging allegations recently levelled at the ANZ while the Commonwealth Bank is in damage control over unethical behaviour at its insurance arm, CommInsure.

It sounds like financial jargon but the bank bill swap rate, or the BBSW, is the rate set in a five minute window every day that determines what banks charge to lend to each other.

For banks it can mean hundreds of millions or billions of dollars in profit. For regular people it sets benchmark rates on corporate loans, business loans, mortgages and credit cards.

Listen to my report from this morning's edition of AM

The corporate regulator ASIC alleges Westpac manipulated the BBSW for two years between April 2010 and June 2012.

In a statement of claim filed with the Federal Court ASIC accused Westpac of a pattern of behaviour that amounts to unconscionable, misleading and deceptive conduct.

Source: ASIC statement of claim 

Westpac's trading had the effect or likely effect of causing the 30 day BBSW to set at a rate which did not reflect genuine forces of supply and demand and of creating an artificial price.

ASIC interviewed around 50 Westpac staff and cites recorded telephone conversations illustrating the high stakes pressure on traders who allegedly push the limits, including this one from Colin Roden, Westpac's managing director of group treasury who is quoted as saying he "knew it was completely wrong":

Source: ASIC statement of claim

The Westpac allegations follow similar action ASIC is taking against the ANZ Bank over the alleged rigging of the bank bill swap rate.

The National Australia Bank and the Commonwealth Bank have been damaged in unrelated scandals involving unethical financial planning, while the CBA is reeling from claims of unethical behaviour at its insurance arm, CommInsure.

Westpac has responded cautiously and says it will vigorously defend itself against ASIC's rate rigging allegations.

Source: Westpac statement 

Nationals Senator John Williams has been crusading against the big banks since his election in 2008 and he says a royal commission into banking bad behaviour is now critical.

"When I was a young fellow back in the 70s, when I first started work, the bank manager was probably the most trusted person in your town and community. I don't think that's the case today," Senator Williams told the ABC's AM program.

"As time goes by the case builds stronger and stronger in my opinion for a royal commission into the finance sector.

"My concern is the culture is simply profit, profit, profit and to hell with the customers".

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