Why are investment banks worried about the Australian cartels case?

By Paulina Duran and Alun John

SYDNEY / HONG KONG (Reuters) – Investment bankers are preparing for the opening of a new court case involving cartel activities in the Australian financial sector, fearing that these procedures would lead to a further examination and more stringent measures by regulators around the world.

Australian authorities launched criminal proceedings in June against Citigroup's local units , German Bank , Australian and New Zealand Banking Group and six bankers for a $ 2.3 billion stock sale.

Most of the previous cartel investigations conducted by the Australian Competition and Consumer Commission (ACCC) have focused on trade in goods. This is the first time that an investigation has resulted in accusations of cartel behavior in the financial sector.

Lawyers representing banks and six bankers are scheduled to appear in court in Sydney Tuesday, but hearings should not begin for several months.

WHAT ARE THE EXPENSES?

Expenses are related to a $ 2.3 billion sale of new shares of ANZ for $ 2.3 billion in August 2015 and subsequent trading of some of these shares by two underwriters – Deutsche Bank and Citigroup. All three denied the wrongdoing and said they would fight the charges.

JP Morgan , who also subscribed to the capital raising, was not charged and did not comment on the case.

Charges were also laid against six leaders: former ANZ treasurer, Rick Moscati; Australia's former Citi president in Australia, Stephen Roberts, the current local capital markets chief, John McLean, the head of currency trading in London, Itay Tuchman; and Michael Ormaechea, former local head of Deutsche, as well as Michael Richardson, former head of local financial markets.

None of the executives have made public comments so far.

An ANZ spokesman declined to comment on behalf of Moscati when Reuters contacted the bank on Friday.

WHY IS IT IMPORTANT?

For investment banks, the case will set a precedent in a field of financial market activity that lacks clear rules and has never been tested in court, according to Citi.

"The underwriting syndicates exist to provide the ability to take on risks and secure large capital increases.They have been operating successfully in Australia in this way for decades," said Citi when he said. case was made public for the first time.

A spokesman for Citi declined to comment further when contacted by Reuters.

The fear is that a hearing involving such prestigious companies and personalities may prompt regulators to take a fresh look at stock trading.

"These are not just criminal charges against traders or people involved in operations, they are very experienced people who have been charged," said Ben Quinlan, CEO of Quinlan & Associates.

Cartel fees in Australia result in a penalty of up to three times the profits from cartel activity or 10% of a company's earnings. Persons convicted are liable to fines or a maximum term of imprisonment of 10 years.

OTHER AUSTRALIAN BANKING SCANDALS?

The Australian Securities and Investments Commission sued ANZ for the same equity offering.

The regulator said the ANZ had breached corporate laws by failing to inform investors that its underwriters had bought about 791 million Australian dollars ($ 558 million) from the total that she was trying to sell.

Regulators are under pressure to restrain the Australian financial sector, while a public inquiry commission or a powerful investigative commission broadcasts almost daily allegations of misconduct.

The commission issued a scathing interim report stating that the big banks and wealth managers aimed to make profits ahead of clients' interests and considered regulatory compliance a cost rather than a guide to good behavior. Several other scandals have touched Australian banks, ranging from fraud to money laundering rates.

WHAT NEXT?

The cases against all parties involved must be "mentioned" in the Tuesday schedule of the local Downing Court in Sydney. Prosecutors told Reuters that the defendants were excused from appearing because it will be an administrative matter that will set a timetable for future hearings.

Meanwhile, the Royal Commission is continuing and ANZ, along with the other three major Australian banks, is expected to be asked about the interim report before a parliamentary committee in Canberra this week.

($ 1 = 1.4166 Australian dollar)

(Report by Paulina Duran in Sydney and Alun John in Hong Kong, edited by Himani Sarkar)