MELBOURNE, AUSTRALIA – SEPTEMBER 15: Generic Westpac Bank on September 15, 2014 in Melbourne, . (Photo by Darrian Traynor/Fairfax Media via Getty Images). Westpac logoThe corporate watchdog’s case against Westpac alleging the bank had rigged one of ‘s key interest rates is a “fallacy”, a court has heard.
The n Securities and Investments Commission has accused Westpac of rigging or attempting to rig the bank bill swap rate (BBSW), a key rate used to set interest rates for business loans, on 16 occasions between 2010 and 2012.
Westpac’s defence to the claim in the Federal Court in Melbourne was challenged by Justice Jonathan Beach on Wednesday.
Westpac lawyer Matthew Darke spent Wednesday afternoon explaining that recordings of Westpac’s internal conversations ASIC says show the bank was manipulating the rate was “nothing more than light-hearted banter”.
Mr Darke told the court Mr Roden’s statement to Commonwealth Bank trader Garfield Lee that Westpac “controlled the market” was “just industry jargon”.
“What Mr Roden is talking about is controlling the bank bill market,” Mr Darke said.
Justice Beach responded: “He does use the word control, it is a very unusual word to use.”
On Tuesday, the court heard Westpac’s lead trader Colin Roden had used expletive laden language to his colleagues to describe his alleged manipulation of the market including “I know it’s wrong but f???k it,” and that he would “f-ck the rate set”.
Mr Darke is yet to explain in detail what Mr Roden meant by saying “I know it is wrong, but f–k it”, references he made about to going to jail over his alleged actions.
Mr Roden is expected to give evidence in the coming weeks.
Earlier on Wednesday, Mr Darke said ASIC’s case against the bank was weak on both factual and technical grounds.
“ASIC’s case completely disregards Westpac’s circumstances,” Mr Darke said.
“There were legitimate reasons for Westpac trading on those days.”
Mr Darke said that conversations between Westpac’s traders including those with Mr Roden and his colleague Sophie Johnson were not about rigging the bank bill swap rate.
“They [the conversations] have been misinterpreted by ASIC; Mr Roden and Ms Johnson have signed affidavits to that effect,” Mr Darke said.
“They are, it seems, the best ASIC can do,” Mr Darke said.
Mr Darke also told the court that concerns Westpac had breached its Chinese walls and that traders within its treasury department were sharing information about the rate set with its financial markets team were unfounded.
Yesterday the court heard Ms Johnson had communicated with Westpac’s financial markets trader Adam Parker about where the bank bill swap rate would be set.
“We would respectfully submit that was not so,” Mr Darke said.
“When one looks at the communication, Ms Johnson refrains from giving Mr Parker any information.”
A key plank of Westpac’s defence is that its traders inside treasury were working to shore up Westpac’s balance sheet and its treasury function is completely separate from its other departments.
ASIC has accused Westpac of engaging in unconscionable conduct by rigging the BBSW. Last week ANZ and NAB settled their cases with the regulator for $50 million each.
The bank bill swap rate, known as BBSW in financial markets, is a key rate at which banks lend to each other over short periods. It is one of the most important interest rates in the economy, providing a benchmark for the setting of a range of business loan interest rates.
The case before Justice Jonathan Beach continues.