(Bloomberg) -- ANZ Group Holdings Ltd.’s markets division accounts for a tiny fraction of the Australian bank’s roughly 40,000 employees. But it’s now becoming an outsized source of trouble for the 189-year-old firm and Chief Executive Officer Shayne Elliott.
ANZ is considering a raft of policy changes to help restore the firm’s damaged reputation after three traders departed the bank amid allegations of misconduct in the Sydney dealing room. The country’s securities regulator is also investigating the bank’s role as risk manager in a debt sale last year, and Elliott has apologized for errors in spreadsheets that misrepresented the value of fixed-income trading given to a government agency.
Interviews with more than a dozen current and former ANZ employees paint a picture of a firm that has grappled for years with allegations of poor behavior among traders. In one sign of how the bank has struggled to bring an end to such behavior, people familiar with the matter said ANZ human resources personnel conducted an internal investigation of the Sydney trading operation in 2019 — questioning staffers about drinking and other conduct issues.
“There’s quite a clear, slow drift back to old practices and old cultures in banking and finance,” said Allan Fels, former chair of the country’s competition regulator and professor at the University of Melbourne and Monash University. “There is enough of this occurring to be an ongoing concern. We have not solved the problems of the industry.”
ANZ’s trading operation is now looking like the problem child of the country’s banking sector, and even Elliott’s job and compensation could be on the line.
An ANZ spokesperson said the firm takes “the conduct and behavioral matters identified within our Sydney dealing room seriously,” according to a statement. The company has “been very clear that where we find any evidence of wrongdoing, those involved will be held accountable.”
In February this year, Elliott had reflected on how he thought ANZ had become a much better organization since a Royal Commission inquiry into financial sector misconduct five years ago led Australian banks to overhaul their business practices and internal governance. When it came to culture and purpose, “one of the things I would like ANZ to be known for is doing the right thing” he wrote in a LinkedIn post.
Six months later, he was defending the bank in front of parliamentarians. Elliott pledged that there will be a series of changes to ensure things related to misconduct don’t happen again.
ANZ shares have lagged behind peers over the past year and on Aug. 23, the country’s banking regulator told the firm it needed to hold more capital. The Australian Prudential Regulation Authority said the recent issues in the markets division suggest the bank has yet to “adequately address deficiencies in its controls, risk culture, governance and accountability.” The agency also told ANZ to appoint an independent party to review the root causes of the problems and come up with a plan to fix them.
Drinking Problems
The investigations have centered around ANZ’s Sydney trading room, one of the smallest of the bank’s dealing rooms in cities around the world. Ex-staffers said there have been deep-seated and longstanding corporate culture issues within the markets division that may have contributed to the recent problems. Complaints from least one ANZ employee helped to fuel the latest regulatory probes, according to a person familiar with the matter.
The 2019 review into the Sydney dealing room involved interviews by HR staff of more than 20 junior and senior traders, and some of the questions were about drug and alcohol use and instances of bullying, recalled one person. No clear policy changes or outcomes for employees resulted, the person said.
Since new allegations were reported by local media in May, ANZ has been trying to contain the fallout. In early August, a bank communications executive showed up on the Sydney trading floor and reminded employees of the protections available to whistleblowers, according to a person familiar with the matter.
In retort, a senior trader questioned why ANZ employees were all being tainted when recent alleged scandals involved only a handful of individuals, added the person.
ANZ’s markets group is run by Singapore-based Anshul Sidher. It is part of the bank’s institutional division, which has been overseen by group executive Mark Whelan since 2016. Neither Sidher nor Whelan are implicated or accused of wrongdoing.
Some staffers on ANZ’s main trading floor in Sydney reported to line managers in other cities or countries, which may have contributed to a lack of close oversight and accountability, according to people familiar with the unit.
Whelan, who is based in Melbourne and travels regularly to the roughly two dozen locations the bank is in, spent little time in the Sydney dealing room, the people added.
ANZ has moved Trevor Vail, its co-head of global fixed income trading, from Singapore to Sydney, and has also appointed a new chief risk officer for the markets division in the Australian financial hub, Bloomberg reported earlier.
Culture Reviews
The bank sought to identify internal culture issues in its global markets business as far back as 2013. That year, an independent review by PricewaterhouseCoopers LLP collected information from 163 people in Australia, Singapore, Hong Kong and the UK, according to a copy of the report seen by Bloomberg News.
It found there was “fear of blame and concerns about raising risk-related issues” with managers and senior leaders. It also flagged weaknesses in guidance on expected behaviors, and “a lack of leadership visibility and trust.” PwC recommended that ANZ improve its risk culture by better defining the strategy, culture, behavior and performance measures for the global markets division.
The review was done after Australian regulators began looking into whether ANZ and other lenders manipulated a key interest rate benchmark called the bank bill swap rate, which is the country’s equivalent of the London interbank offered rate. In 2014, ANZ suspended seven traders while the investigation was going on. It later dismissed three of them and reinstated the others.
ANZ’s former head of global markets, Steve Bellotti, left ANZ in 2015. Court documents that became public after his departure alleged that he and a colleague had engaged in inappropriate behavior, including sexual harassment of a junior person from another firm, and “excessive consumption of alcohol” during a 2013 ANZ global capital markets conference in the Hunter Valley, at an exclusive resort north of Sydney.
Bellotti declined to comment. ANZ also investigated the Hunter Valley incidents, according to the documents, which were part of an employment dispute involving another bank employee. That case was settled earlier this year.
The Australian Securities and Investments Commission also looked at ANZ’s corporate culture when investigating the firm’s involvement in the bank-bill rate-rigging affair. ANZ ended up reaching a settlement in 2017 with ASIC, and paid a total of A$50 million to end the case. The bank acknowledged it failed to adequately train traders and acknowledged some of them engaged in “unconscionable conduct” on a slew of dates between 2010 to 2012.
The bank said in November 2017 that it has significantly changed the way it manages its markets business, including new policies and systems as well as introducing extensive training for all traders.
Then in July 2019, following the Royal Commission inquiry, APRA told ANZ it needed to hold an extra A$500 million in capital and improve its non-financial risk management. Australia’s three other largest banks were also required to increase their capital levels, and all of them except ANZ have since had these reduced or removed. Instead, ANZ’s requirement was last month raised to an additional A$750 million.
Elsewhere in the world, like in the UK, the people whose responsibility it is to manage individual traders “would be held personally liable for turning a blind eye to what’s been going on,” said Andy Schmulow, associate professor of law at the University of Wollongong. “That’s not possible in Australia,” he said.
--With assistance from Ambereen Choudhury and Denise Wee.
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