ASIC Launches Legal Action Against Westpac

This week has seen a deluge of local financial news which continued overnight. Following the ABC’s Monday night 7:30 Report segment on questionable lending practices, yesterday articles appeared regarding what ASIC is calling “unconscionable conduct” at Westpac; news that all but drowned out the RBA’s announcement to leave rates at 2% for the 11^th consecutive month. This morning we briefly summarise the news to date, the reaction in the media and emphasise what this may mean for local depositors and investors.

Readers may recall ASIC’s accusations against ANZ regarding BBSW (bank bill swap rate) fixing last month. Yesterday, similar action was taken against Westpac in what may be determined as a breach of the Corporations Act. It is claimed that over a period of two years, Westpac employees acted in a manner that produced artificial rate environments beneficial to the bank on 16 occasions. The scenario draws close parallels to the LIBOR (London interbank offered rate) scandal which embroiled banks such as Royal Bank of Scotland and UBS and had some impact in Australia also.

In simple terms, the allegations suggest that the particular events in question saw Westpac with numerous products which derived their value from the BBSW and that it conducted trading activity in the bank bill market with the objective of impacting pricing in a manner favourable to the bank.

Opinion is broad and confronting regarding ASIC’s actions and a spectrum of comments can be seen in the news as a consequence. Sarah Danckert and Clancy Yeates, both business reporters at the SMH and The Age described ASIC’s move as having “again shone a light on the toxic culture of trading floors in Australia”. In contrast, Financial System Inquiry chair and former Commonwealth Bank chief David Murray has gone as far as saying “Adolf Hitler comes to mind” when attempting to articulate what he sees as ASIC’s overreached attempts to regulate culture and subsequently pursue “liability for a culture breach”.

As mentioned above, news surrounding the mortgage related risks in our banking sector which we discussed immediately following the Easter break has continued this week with APRA chairman Wayne Byres admitting that some bank lending aspects are now “eerily similar” to those observed at the time of the GFC. These recent developments have seen banking stocks drag the Australian equity markets to the lowest levels in a month.

Perhaps as a result of the Australian government deposit guarantee scheme, it would be reasonable to say that many Australians in general view the local banks as stable entities and as such, vehicles that can be entrusted with savings and investments. Determination of risk tolerance is a personal choice; however in environments such as these it is prudent to consider the suggestions of those such as American market trader and commentator Gregory Mannarino. One of Mr. Mannarino’s suggestive catch phrases is “become your own central bank”, alluding to the ability to acquire personal reserves comprising of physical and ideally liquid and divisible assets.