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Bank probe timing couldn’t be worse amid Gupta blacklisting - expert

Feb 16 2017 12:00
Renee Bonorchis and Mike Cohen

Cape Town – The Competition Commission’s decision to prosecute 17 banks for foreign exchange collusion is badly timed for South Africa's top four banks, who are trying keep the moral high ground after blacklisting the Guptas due to allegations of state capture.

That is the message from Adrian Saville, the chief strategist at Citadel Investment Services & Cannon Asset Managers.

“The timing for banks couldn’t be worse,” he said on Thursday. “They’ve been trying to capture the moral high ground on the Gupta issue. It comes at a time when they’re trying to demonstrate impeccable behaviour. It makes a case for intervention.”

READ: Rogue traders or bank collusion?

Only Standard Bank and Absa were cited in the decision, but the move will likely impact the entire banking industry.

Banking stocks traded in Johannesburg fell for the first day in six to head for their biggest decline in a week.

Standard Bank led banking shares in Johannesburg lower on Thursday, falling 1% by 11:15. Nedbank and FirstRand, which aren’t named in the probe, dropped 0.8% and 0.7%, while Barclays Africa declined 0.6%.

The outcome of the probe comes as President Jacob Zuma and his governing African National Congress step up pressure to break the dominance of South Africa’s four largest lenders.

READ: Punish guilty banks harshly, urges ANC

Zuma and the banks are locked in a stand-off after the lenders closed the accounts of companies tied to his friends, the Guptas.

He has accused banks of not doing enough to improve access to the economy that still eludes many of the country’s black majority almost 23 years since the end of apartheid.

The commission urged the banks be fined for colluding and manipulating trades in the rand, becoming potentially the latest in a string of penalties handed to lenders around the world for rigging currencies.

The Competition Commission identified lenders including  Bank of America Merrill Lynch, HSBC, BNP Paribas, Credit Suisse, HSBC, JPMorgan and Nomura as having participated in price fixing and market allocation in the trading of foreign currency pairs involving the rand since at least 2007. It referred the case to an Competition Tribunal, concluding an investigation that began in 2015.

The action follows the sentencing by a US federal judge in January of Citigroup, Barclays, JPMorgan and Royal Bank of Scotland, which all pleaded guilty in May 2015 to rigging currency rates.

READ: How banks allegedly colluded on currency trades

As part of an overall $5.8bn settlement with multiple regulators, they agreed to pay about $2.5bn to the Justice Department.

South Africa’s Reserve Bank said the Competition Commission’s investigation related mainly to the rand-dollar in offshore markets.

“The respondents manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times,” the commission said on Wednesday.

“They assisted each other to reach the desired prices by coordinating trading times. They also created fictitious bids and offers, distorting demand and supply in order to achieve their profit motives.”

The Reserve Bank said in a statement it viewed the allegations as a serious matter and would allow proceedings to run their course.

Some 30% of daily turnover in the rand takes place in South Africa, of which foreigners account for 58%. In April 2016, the daily average worldwide foreign-exchange trading involving the rand was about $49bn, it said, citing Bank for International Settlements data, representing 1%of total turnover.

“Collusive practices must lead to consequences such as termination of the services of key management, executive and non-executive directors,” said Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management. “The banks, if guilty, will most likely be fined and this will have a negative impact on earnings and reputation.”

READ: Questions over timing of banks' collusion case

Investec said it would cooperate with authorities, but was unable to comment further because it didn’t have details of their investigations. Barclays also said it would cooperate with the authorities, while noting that the regulator had not sought penalties against it. Credit Suisse said it is looking into the matter.

“The profit-driven assault on the South African rand through such collusion and corruption by the banks flies in the face of efforts” to ensure prosperity for everyone in the country, the ANC said in a statement. “It is further an indication of how the markets are and can be manipulated by dominant oligopolies to cripple its functioning to suit their nefarious agenda.”

The tribunal will now notify the banks of the complaint and ask them to respond, Chantelle Benjamin, a spokesperson for the body, said by phone. The banks will then file statements and attend a preliminary meeting to set a date for a full hearing, she said.

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absa  |  standard bank  |  collusion  |  rand  |  forex  |  banks  |  price fixing

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