CBA treasurer was warned of possible BBSW investigation
The Australian 12:00am March 9, 2018
Ben Butler, Michael Roddan
During her time as CBA treasurer, high-flying Westpac executive Lyn Cobley was warned that “aggressive” behaviour in the bank bill market was likely to result in an investigation by authorities, Federal Court documents reveal.
A fresh cache of emails, phone calls and chatroom transcripts, relied upon by the Australian Securities & Investments Commission in a rate-rigging case against CBA, also sheds more light on trading room culture, with CBA bankers invoking Hollywood in apparent defence of rate manipulation and being told that rivals would “f... you like you are being done by a Russian hooker on speed”.
The documents also show CBA executives discussed how to “push up”, “set” and “destroy” the key bank bill swap rate benchmark, which is used to price billions of dollars of loans across the economy.
In its Federal Court case, launched in January, ASIC accuses CBA of rigging or attempting to rig the BBSW six times in 2012.
However, in the newly available material, filed on Wednesday and made available by the court yesterday, ASIC roams as far back as 2001 as part of its effort to prove CBA had a pattern of trying to rig the BBSW.
The earliest document cited by ASIC is an April 23, 2001 file note in which CBA treasury executive Roman Groblicki claims that the bank would have lost $100,000 to Citi if he had not influenced where the BBSW set by buying $300m of bank bills during the rate-set window.
At the time, the BBSW was set during a frantic five-minute trading window just before 10am.
Mr Groblicki features in another document filed by ASIC and dated nine years later — an October 20, 2010 email to fellow CBA worker Paul Bennett in which he explains that “in order to affect rate sets” the bank’s swaps desk “explicitly goes into the market and buys paper”.
“They do not know in advance what they will get and will thus sometimes get CBA/CD’s which they will hold for a few days to a week and then sell into the market to push up the BBSW,” Mr Groblicki said in the email.
And in a February 2012 phone call with Grant “Barnesy” Barnes, CBA’s chief dealer of interest rate swaps, Mr Groblicki described the behaviour of ANZ and Westpac as “a bit, sort of, collusive”.
“I know, I know,” Mr Barnes responded. “I don’t like to use that word but I agree.”
The documents show that CBA executive Paul Bennett warned Ms Cobley about aggressive behaviour by ANZ in the BBSW market in early October, 2011.
“Might be a good point to raise with treasurers as it makes the dealers money but pushes the spreads against the banks and ultimately customers,” he said in an email. “Also this kind of behaviour will likely be investigated if it continues. IE Libor setting investigations in Europe.”
As head of Treasury from 2007 to 2013, Ms Cobley was responsible for a number of smaller divisions key to the running of the BBSW trading floor, including liquidity operations and portfolio risk management.
ASIC’s transcripts also include conversations where traders tip off rival bankers about their intentions for upcoming rate sets.
In October 2009, CBA’s Garfield “Bad Kitty” Lee, who has since left the bank, used a chatroom to tell National Australia Bank trader Rob Collins: “I reckon it’s so much more fun passing the ball around and doing it together.”
“Then no one runs out of bullets too,” said Mr Lee, who then urged Mr Collins to let his colleague NAB trader Paul “Howie” Howarth “push the (market)” in his “favour”.
In another email, CBA treasury division executive David Sietsma channelled Jack Nicholson’s famous “you can’t handle the truth” scene from the Hollywood hit A Few Good Men in apparent defence of attempts to manipulate the BBSW.
In the courtroom scene, Nicholson’s character, Colonel Nathan R. Jessep, ferociously defends two of his underlings charged with the murder of a fellow marine.
“You can’t handle the truth!” Mr Sietsma told colleagues in treasury’s asset and liability management group in the 2008 email.
“You weep for 6 month BBSW and you curse the banks that manipulate the rate set.
“You have that luxury.
“You have the luxury of not knowing what I know: that the BBSW rate set, while tragic, is the best thing we’ve got.
“And ALM’s existence, while grotesque and incomprehensible to you, protects profits …”
It is not the first time ASIC’s pursuit of the big banks over alleged rate-rigging has revealed traders apparently channelling Hollywood.
Previous transcripts released by the court for ASIC’s similar case against Westpac appeared to show the bank’s financial markets trader Adam Parker channel Gordon Gekko protege Bud Fox from the 1987 classic Wall Street when outlining the bank’s strategy for trading millions of dollars worth of funds.
Mr Parker told his colleague Sophie “The Perfumed Steamroller” Johnston the bank has to do “a bit of blue horse sxxx” during a particularly difficult trading day.
In Wall Street, the young trader named Bud Fox passes along hot stock tips from a mysterious investor — corporate raider Gordon Gekko — by saying “Blue Horseshoe loves Anacott Steel” or “Blue Horseshoe loves Teldar Paper”.
Westpac fought ASIC’s allegations at trial in November and is currently awaiting judgment from Justice Jonathan Beach.
Two other banks pursued by ASIC, ANZ and NAB, agreed to settle with the regulator by admitting to attempted unconscionable conduct and paying $100m.
Colourful former ANZ head of balance sheet trading, Etienne Alexiou, reappears in ASIC’s transcripts lodged for its case against CBA. Mr Alexiou was sacked in 2015 for lewd and explicit electronic chats which ANZ said breached the bank’s code of conduct. He attempted to sue ANZ for $30m before dropping his unfair dismissal claim.
In the latest transcripts, Mr Alexiou tells Mr Lee and Pimco’s Matthew Mulcahy that the ratesets were “pure (market) manipulation” and that the rules “shuld (sic) be more srtict (sic)”. Mr Alexiou also agrees with Mr Lee that the market will move if Pimco buys a significant amount of bank bills. “You don’t need to be on a panel if you have that many bullets to spend,” Mr Lee said in the 2009 instant chat.
He was also party to another instant chat conversation in which HSBC banker Carl Radford told him that “ANZ will f... you on ratesets till yur blue int he face”. “They will deny but they will f... u liek (sic) you are being done by a russian hooker on speed,” Mr Radford said in the April, 2010, chat.