Just a week ago, Westpac chief executive Peter King hailed a new era of success for the bank, which had finally put the messy AUSTRAC matter behind it after paying out more than a billion dollars in penalties. Now the bank stands accused of potentially illegal tactics in relation to the largest single-tranche interest rate swap in Australian history.
Here are the facts: ASIC alleges that, by about 8:30 AM on 20 October 2016, Westpac “knew or believed” that it would be tapped on the shoulder to execute a $12 billion interest rate swap deal on behalf of a consortium of AustralianSuper and a number of IFM companies that had – at 7:00 AM – signed a deal to buy a controlling stake in Ausgrid.
ASIC alleges that Westpac then executed hundreds of trades with the intention of pre-positioning its books for the deal, to the potential detriment of the consortium that “did not know of Westpac’s intention to trade in the traded products if it became aware, knew or believed that it had been selected to execute the swap deal and ahead of executing it or that it would engage in the morning trading”.
In its statement of claim, ASIC names a bevy of Westpac personnel who allegedly knew “some or all of the Ausgrid information”.
“The Ausgrid Information was not generally available, and it was information which, if generally available, a reasonable person would expect to have a material effect on the price or value of the traded products. Westpac knew or ought reasonably to have known this,” ASIC said.
All in all, it looks to be a wildly ugly case – for both sides. Missing from ASIC’s statement of claim is what and how Westpac knew about the likely deal. There’s an enormous chasm between “knew” and “believed”, and absent a smoking gun (which one could be produced at some point during proceedings) it could be difficult to prove that anybody knew anything in advance – in which case a penalty could be substantially smaller.
Of course, there is also another issue in question: whether Westpac engaged in unconscionable conduct by failing to alert the consortium to its intentions. A potential court battle will likely be protracted and bloody. So far, Mr King hasn’t indicated that Westpac will defend the case.
Should it come to that, one would hope that after the wagyu and shiraz defeat – and Treasurer Josh Frydenberg’s ominous missive that ASIC must “support Australia’s economic recovery from the COVID pandemic” – the corporate cop has all its ducks in a row.
