Cartel me this

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.

In the end, that retail SPP offer was closed at $26.50, a $720m raising.

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.

Follow I Am Spartacus on Twitter at @Ey_am_Spartacus

This entry was posted in Uncategorized. Bookmark the permalink.

12 Responses to Cartel me this

  1. jock

    Having been involved in capital raisings at a corporate level this form of green shoeing is common. Frankly it would be common for most major raisings. Feasibly there could be more of these actions.

  2. RobK

    Good on the ACCC for at least investing something more relevant than free range egg labeling.
    Indeed. Why did it take a Royal Commission to bring it about?

  3. Bruce of Newcastle

    ACCC may faceplant on this one. Again.

    If the underwriting agreements stipulate conditions for sale of shares that the underwriters have had to take up that is a contract which has been freely entered into.

    The ACCC would not have access to the agreements as they would be commercial in confidence.

    It would be very surprising if the agreements didn’t have such clauses.

    I smell a gold digging exercise by ACCC leveraging off the Bash Banks RC: sue & settle for some nice yummy money. We’ll see if ANZ and the others have the balls to stand up for their rights.

  4. Sypher

    Underwriters have an obligation to multiple stakeholders; the issuer (ANZ) who pays them a fee, their institutional clients, their retail clients, their shareholders, existing ANZ shareholders, the regulators and the market more generally. Which of these stakeholders would benefit from an underwriter flooding the market with excess shares thereby negatively impacting the share price? If it is a crime to manager an “orderly” sell down of stock then every fund manager in the land is guilty. Remember, we’re talking about 1% of the shares on issue here.
    The issue, it seems, is that the underwriting syndicate banks should not have discussed amongst each other their intention to sell down in an orderly manner despite it being the logical thing to do.
    I suspect the greatest impact this case will have in the corporate advisory sector is a lack of trust between underwriting syndicates. Interesting to note JP Morgan have been granted immunity for throwing their syndicate partners under a bus. JPM equity capital markets team – it may be a while before your next deal!

  5. The ACCC would not have access to the agreements as they would be commercial in confidence.

    Oh yes they will get access. No doubt about it. They probably already have it, but if they don’t they will quick get when they issue a Court ordered notice to produce.

    The question is not the sell down. The question is whether the underwriters discussed and coordinated the sell down.

    Can you imagine the response of people if, for example and hypothetically, Coca Cola entered into an agreement with Woolworths and Coles to not discount products while Coca Cola was negotiating annual contracts with others.

  6. Roger

    The ACCC would not have access to the agreements as they would be commercial in confidence.

    The ACCC has significant statutory powers to obtain information and can also utilise the ordinary powers of a court to subpoena documents. Commercial confidence is not an absolute right to confidence, especially after the fact and in a criminal trial.

  7. DaveR

    The ACCC allegations appear to be concerned with the subsequent disposal of the$790m shortfall shares taken up by the underwriters as part of the offer structure, and have included the issuer, ANZ, in the action.

    Underwriting agreements often contain clauses binding the underwriters to conditions on the disposal of any shortfall shares, such as timing and price restrictions. If this was the case with this ANZ issue, then the underwriters would definitely be acting together, as required under the terms of the underwriting agreement, with ANZ in full knowledge of their obligations.

    It is not known (by me) whether this ANZ issue had a high expectation of a significant shortfall at the offer price (it was 30%), and therefore ANZ was using the underwriting structure as part of the offer strategy, to get a high offer price. If so, it would be reasonable to expect some shortfall disposal terms in the contract.

  8. RobK

    I expect there’s a fine line between “orderly” disposal of the shares and collusion.

  9. DavidA

    I’m still vague on what happened – were there two, sophisticated and non-sophisticated (sucker), retail offers, and the latter paid $30.95 rather than the lower price average the sophisticates paid?

  10. Barry Bones

    Rubbish – they didn’t have market power. We’re talking less than 0.5% of the market cap.

    Tell me a cartel with a .5% market share ??

  11. DaveR

    ACCC head Rod Sims was quick to point out that the investigation into the ANZ share placement had been ongoing for the last two years. I wonder what has changed recently to cause the ACCC to bring on the charges now? Miraculous discovery of vital new information?

  12. Red Robbo

    I’ve been involved in these raisings too – as both a broker and a corporate raising equity capital.

    I’d assume that all underwriters knew everything with the insto placement, as they have to in order to avoid more than one firm approaching the same insto buyer with maybe different size allocations and so on , and so did the bank (all corporates want to know who is getting their hands on the stock, at least for larger or significant parcels, avoiding short-term traders, hedge funds etc.). The u/wtrs would each have their own retail distribution channels too but would not typically share info on this in my experience although the corporate would generally want to know.

    It’s going to be a very interesting case indeed. I’d be surprised if the investment banks shared much info on how much stock they were left with and how much loss, if any, they were facing on it after the retail allocations. They are highly competitive in this respect – loss of face and all that – and don’t like holding anything very long anyway. But each would have an interest in maintaining an ‘orderly’ market, i.e. not slaughtering the price to get stock away.

Comments are closed.