Australian regulator increases capital surcharge for ANZ, citing bond scandal
By Byron Kaye and Roushni Nair
(Reuters) – Australia’s banking regulator on Friday increased the amount of cash Australia’s third-biggest bank, ANZ, must hold amid suspicions of widespread misconduct in its bond trading unit, the first financial fallout from the growing scandal.
The Australian Prudential Regulation Authority (APRA) was supposed to review a $500 million ($335 million) capital increase it imposed on ANZ and other major lenders in 2019 as part of a campaign against misconduct in the industry, but instead increased ANZ’s demand by $250 million, citing concerns about risk culture.
The regulator also asked Australia’s seventh-largest listed company to engage an outside service provider to investigate the causes of problems in its bond trading division, in addition to the investigations already underway by the bank and the securities regulator.
APRA’s order is the first noticeable impact on the bank since media reports in May said the bank’s traders misrepresented the value of a 2023 government bond traded. ANZ has since said it has dismissed and suspended traders and launched a multi-pronged investigation that will consider market-related activities and staff conduct.
“ANZ is financially sound and has strong levels of capital and liquidity. However, weaknesses in the management of non-financial risks can have adverse financial consequences and APRA will not tolerate persistent weaknesses,” APRA Chairman John Lonsdale said in a statement.
The regulator had informed ANZ’s board and management that it would address the underlying causes of the problem. “Depending on the results of ANZ’s independent review, APRA will consider whether further action is required,” Lonsdale added.
ANZ said in a statement that it acknowledged APRA’s concerns and was accelerating work already underway to resolve the issues. The bank was working with the regulator on the scope of the independent review, it added.
ANZ shares lost as much as 1 percent in early trading on Friday, reflecting a decline of more than 0.4 percent in the overall market. In comparison, shares in the other four major banks, Commonwealth Bank, Westpac and National Australia Bank, posted slight gains.
Although ANZ, which recently completed its purchase of insurer Suncorp’s bank for A$5 billion, has reported financial results in line with its rivals, analysts warn the bond trading scandal could become a distraction.
“While small in the context of a group, it illustrates the risk of disproportionate consequences due to inappropriate behavior,” Jefferies analyst Matthew Wilson said in a July note.
(1 US dollar = 1.4912 Australian dollars)
(Reporting by Byron Kaye in Sydney and Roushni Nair in Bengaluru; Editing by Mohammed Safi Shamsi and Stephen Coates)
