There has been much written and much more to be written about the cartel allegations against ANZ, Deutsche Bank and Citi, and also the role of JP Morgan who were either the whistle blowers and/or cooperating witnesses. This is what Spartacus reckons happened. But first, the standard trigger warnings and disclosures.
Spartacus is not now and has never been an employee of ANZ, Deutsche, Citi or JP Morgan. Spartacus is not a share holder of the above. Spartacus did not participate in the ANZ capital raising in question. Spartacus has not seen the CDPP’s charge information and he does not know anyone at the ACCC. The following is based only in joining the dots between what has been in the media and on an understanding of how the Australian capital markets work.
In 2015, ANZ was seeking to raise some capital. To do this, it was selling something – its shares. It would issue (manufacture) new shares in exchange for money.
One method employed by large organisations to raise capital is to separate retail investors and institutional investors. They first go to institutional investors, who are generally more sophisticated which lots of cash and few in number. And then based on the result then go the retail investors using the price obtained from the institutional investors as a guide.
To give the company raising capital, ANZ in this case, certainty of raising the amount of money they need, they engage other organisations (usually banks) to underwrite the offering. What this means is that, in exchange for a fee, perhaps 1% of the total amount, the underwriter guarantees that all the stock is sold. And if the stock is not sold to investors, the underwriters have to buy the stock themselves.
And this is exactly what happened. ANZ wanted to raise $2.5 billion but could only sell $1.8 to institutional investors, meaning that the underwriters (Deutsche, Citi and JP Morgan) had to stump up and buy the remaining $700 million of ANZ stock.
But this is where it probably got interesting.
The 3 underwriters could have then dumped the ANZ stock into the market and lost the difference between what they paid for it and what they sold it for. This would have likely put downward pressure on the ANZ share price given the large amount of stock that would have likely entered the market. But ANZ had a dog in the fight still:
another $500m-odd was to be raised by ANZ in a retail offering to sophisticated investors, opening 18 days after the pricing of the placement, and closing two weeks after that. The price for that SPP was the lesser of $30.95, or a 2 per cent discount to the average share price of the five days leading up to the SPP offer close.
And note that the institutional underwritten price was $30.95:
The final pricing of the placement was at the underwritten floor price of $30.95. Some in the market thought that it should be lower.
So this is what Spartacus thinks happened. Having been lumped with a $700 million of ANZ stock they did not really want, the underwriters with ANZ (who had a stake in the success of the subsequent retail offering) got together to manage an “orderly” sell down of the under writers stock.
Again. This is all supposition and all the information is not out there. And there will certainly be lots more and said about this. But if the above is actually what happened, it would not be tolerated in any other industrial setting and it should equally not be tolerated here.
Good on the ACCC for at least investing something more relevant than free range egg labeling.
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