There’s trouble brewing at some of the big banks, and it’s all down to accusations over rate fixing. In this instalment of the debacle, we’ve got a National Australian Bank trader saying that his co-worker – who allegedly rigged the bank bill swap rate – “f–ked up big time”.
In case you’re wondering, the bank bill swap rate (BBSW) is used by banks to decide the rate at which they lend to each other. It’s based on an average of market rates supplied by domestic banks, and they use it to set rates for things like business and commercial loans.
Having the BBSW in place provides an open and transparent way for banks to trade fairly with each other. At least that’s the idea…
The system clearly has its flaws though, because the Australian Securities and Investments Commission (ASIC) has just filed its statement of claim against NAB, in which it alleges several of the bank’s brokers were involved in BBSW fixing.
In what is playing out a bit like a soap opera, the star cast consists of Paul Howarth, the head of short-term interest rate trading at NAB, and his two colleagues Terry Maxted and David Page.
The allegation is that Paul deliberately withheld 90-day bank bill swap rates from Terry in order to fix the rate.
In the trade in question, Terry was trying to trade the bills to his client, wealth management giant AMP, from both Paul and David (at the time, David did not have the bills).
ASIC has copies of telephone, email and chat room transcripts which allegedly make it clear that Paul delayed the release of the bills to Terry until after the rate had been set.
After David found out what had happened on September 9, the records show he said to Terry: “They’re abusing everybody. They’re abusing the balance sheet, they’re abusing the market, they’re abusing customers.”
After receiving the bills from Paul, Terry told David: “Paul’s just redeemed himself a bit. He come over… They’ve got so much bloody stock, which he could have done them.”
And David replied: “Well, he (Paul) hasn’t redeemed himself. He’s f–king failed at the rate set and he’s coming crawling back I wouldn’t call it redeeming himself.”
David added: “He’s f–ked up big time … I think it’s been disgraceful today – honestly disgraceful.”
NAB chief risk officer David Gall responded with a statement which said “doing the right thing by our customers” was a core value of the bank, and they did not condone “inappropriate language”.
“ASIC’s detailed statement of claim refers to a number of emails, instant chat messages and telephone conversations involving our employees. NAB retains this information as part of our business processes,” he said.
“As we have said, we do not agree with ASIC’s claims, which means they will now be settled by the Federal Court process.”
NAB is not the first to be under fire from ASIC. After a run of scandals in the finance sector involving financial advice, insurance and wealth, ASIC is putting pressure on the country’s big banks to crack down on their shortcomings.
The regulator has so far launched legal action against NAB, Westpac and ANZ Bank, and traders from Commonwealth Bank are currently under investigation although no lawsuit has been filed.
Justice Jonathan Beach said at a directions hearing in the Federal Court last month that he wanted to hear all three cases together, setting a provisional date for the trial in August next year.
But ASIC wants to have the ANZ case heard first, probably because it’s the strongest and would help set a precedent. Still, we’ll have to wait a while to see how this particular drama ends.