Australia and New Zealand Banking Group Limited (ASX: ANZ)

Investigation in relation to Institutional Equity Placement – While last few days have been difficult for Australia and New Zealand Banking Group Limited (ASX: ANZ) at the back of the criminal cartel case relating to the 2015 institutional capital raising, the stock saw a recovery of 0.8% on June 07, 2018. The latest news relating to release of names of key personnel against whom charges have been cited, has added to the woes. As we know by now that key officials from Australia and New Zealand Banking Group Limited have been under immense pressure while Deutsche Bank, Citi and JP Morgan were the underwriters for the institutional capital raising in 2015. Among them, Stephen Roberts (former country head for Citi in Australia), John McLean (local head of capital markets origination) and Itay Tuchman (former head of markets and securities service) from Citi are named to be under high-level scrutiny. As of now, Citi is defending the case to be entailing a capital raising that is one of the many usual raisings and there was no mal-intent in the ANZ case. As this case sets to be first of its kind, the alleged parties expect to have more clarity from regulatory standpoint. Nonetheless, it raises few eyebrows on the capital raising procedures itself.

On the other hand, JPMorgan chief executive officer Rob Priestley, has been relieved from the cartel case while he was also involved when the broker underwrote ANZ’s $2.5 billion capital raising. This came on the grounds of co-operating with the investigation while others are being scrutinised for an attempt to minimise the downside risk to the ANZ share price when investors failed to take a dip into the capital raising.

This entire saga is stemming from the recent decision of the Commonwealth Director of Public Prosecutions (CDPP) that intended to commence proceedings against ANZ bank for being knowingly concerned in alleged cartel conduct by the joint lead managers of ANZ's underwritten Institutional Equity Placement of approximately 80.8 million shares in August 2015. As per ANZ, it acted in accordance with the law in relation to the placement and on that basis the bank intended to defend both the company and its employees. The Group was also co-operating with regards to an investigation by the Australian Securities and Investments Commission (ASIC) in relation to the placement.


Provision Ratios (Source: Company Reports)

ASIC is undertaking its investigation on the grounds that whether ANZ's announcement of 7 August 2015 should have stated about the joint lead managers taking up approximately 25.5 million shares of the placement which represented about 0.91 per cent of total shares on issue at that time. ANZ is aware of the fact that CDPP also intends to bring proceedings against ANZ Group’s Treasurer Rick Moscati. This act will prove to be a distraction for the Group from spending time on the Royal Commission and other regulatory enquiries. The Group’s average LCR for 6 months to 31 March 2018 was 134 per cent with total liquid assets exceeding net outflow by an average of $48.3 billion.

Recently, the Bank announced that it was continuing to examine a broad range of options for UDC’s future including an Initial Public Offering (IPO) and trade sale and as a result of the ongoing process, the assets and liabilities of UDC meet the criteria to be classified as held for sale as at 31 March 2018. Moreover, the Bank announced that it had entered into an agreement to sell OnePath Life (NZ) Limited to Cigna Corporation and ANZ Holdings (New Zealand) Limited issued NZ$3,000 million of preference shares and paid an ordinary dividend of NZ$3,000 million to the Immediate Parent Company.

Since the start of the year, the shares have been declining by 7.2 per cent and were down by 3.98 per cent in last one month. We give a “Hold” recommendation at the current market price of $26.73 in view of the newly erupted criminal charges against the bank.

 
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