Westpac ‘tried to rig interest rate’
WESTPAC engaged in unconscionable conduct over its trading in the bank bill market, a Federal Court has found.
But the bank was cleared of the more serious allegations brought by corporate regulator alleging the bank manipulated the bank bill swap rate, a key rate that affects the rate at which institutions borrow and lend money.
Federal Court Justice Jonathan Beach on Thursday made the ruling in Melbourne, following a rate rigging case brought by ASIC.
The Australian Securities and Investments Commission (ASIC) had accused the bank of engaging in misconduct and market manipulation to push the bank bill swap rate (BBSW) higher or lower between 2010 and 2012.
Justice Beach said that case had not been made out.
However, he did find the bank engaged in unconscionable conduct four times between April and December, 2010, by trading prime bank bills in the bank bill market, with the dominant aim of influencing yields and where the BBSW was set.
"Many of the steps it took after July, 2012, should have been in place during the relevant period," Justice Beach said.
"Further, in my view Westpac failed to ensure its traders were adequately trained not to engage in trading with such a sole or dominant purpose.
"This should have been reinforced and stipulated to them orally and in writing."
As a result, Westpac also contravened the Corporations Act, by breaching its financial services obligations.
The other three big banks settled out of court over the same accusation of rate rigging but Westpac decided to fight on.
The CBA earlier agreed to pay $25 million to settle legal action brought against the bank by corporate regulator ASIC over bank bill swap rates.
ANZ settled in November for $50m and NAB in October for the same amount.
Costs were reserved at Thursday's hearing, with parties invited to make submissions and the case adjourned to a date to be fixed.
WESTPAC EXPOSED AT ROYAL COMMISSION
Westpac has defended trying to repossess an elderly disability pensioner's home that had been used as security for her daughter's failed business venture.
NSW woman Carolyn Flanagan, who is legally blind and has a number of medical conditions, faced losing her home after guaranteeing a business loan for her daughter and daughter's partner in 2010.
The banking royal commission heard Westpac would not accept a guarantee from a parent unless that person stood to receive a direct benefit from the business loan.
But despite what the loan application and documents said, Ms Flanagan - a disability support pensioner - was not employed by the franchise, nor was she a shareholder and likely to receive dividends.
Commissioner Kenneth Hayne QC questioned whether Westpac's assessment process on the guarantor's potential for financial benefit was more form than substance or "box ticking rather than looking at the reality".
Westpac executive Alastair Welsh agreed that it was "more form". He said the process was to ensure there would be a commercial benefit but that many parents wanted to support their children, who may struggle to access finance for a business.
"The support of parents is critical," Welsh, Westpac's general manager of commercial banking, said on Tuesday.
"The support of a guarantee for many small businesses is critical." Westpac maintained it was entitled to rely on the guarantee and that there were no problems with the guarantee process, nor with making the loan. But Mr Welsh admitted the bank was wrong to initially deny Ms Flanagan's financial hardship claim, having moved to repossess the home after the borrowers defaulted on the loan.
"We made an error here, yes," he told the commission.
"We forgot this was about Ms Flanagan." He said the bank focused on the legal process when Ms Flanagan's claim went to the Financial Ombudsman Service, which backed the bank.
"She was looking to stay in her home," Mr Welsh said.
"When we finally cut to the chase of that, that's what we did. "We gave her life tenancy for her home." After Legal Aid NSW intervened, Westpac ultimately agreed to let Ms Flanagan remain in her home until she dies or chooses to sell it.
It will then be entitled to take $170,000, plus three per cent in interest that has accrued each year.