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Citi and Deutsche Bank Units Face Court Over Cartel Case

Zacks Equity Research
If Citigroup (C) and Deutsche Bank (DB) are proven guilty of the allegations of criminal cartel conduct, their financials and reputation might face a major setback.

The Australian subsidiaries of Citigroup C and Deutsche Bank DB faced court on Tuesday over allegations of criminal cartel conduct during the sale of Australia and New Zealand Banking Group Limited’s ANZBY shares worth A$2.5 billion ($1.9 billion) in Australia.

Lawyers of the accused have demanded the prosecution to file a statement of facts to know in details what the banks and bankers are charged of. The court adjourned the case until Feb 5, 2019 ordering the prosecution to file the full details of their case by Dec 11, 2018.

Brief on the Case

In August 2015, Citigroup, Deutsche Bank and JPMorgan JPM were the underwriters for the institutional placement of nearly 80.8 million shares of ANZ Bank, which was conducted to raise capital for meeting regulatory requirements.

However, Citigroup and Deutsche Bank, as part of their underwriting commitment, created a cartel arrangement. They, thus, reached an understanding for the disposal of 25.5 million shares that the banks absorbed as part of the placement. These shares represented less than 1% of ANZ Bank’s outstanding shares at that time.

Having investigated the matter for over two years, the Australian Competition and Consumer Commission (“ACCC”) had put forth the allegations in June 2018.

The regulator laid criminal charges against Citigroup’s former Australia head Stephen Roberts, its present local head of capital markets John McLean and the bank’s London-based head of foreign exchange trading Itay Tuchman. Further, Deutsche Bank's former local chief Michael Ormaechea and former local capital markets head Michael Richardson were sued. Also, ANZ Bank’s treasurer Rick Moscati had been charged for cartel offences.

JPMorgan was found to be clean by the ACCC and thus faced no charges.

All the three banks (Citigroup, Deutsche Bank and ANZ) have denied the accusations. However, if they are found to be guilty, the companies could face penalties of up to A$10 million or triple the benefit of the conduct. Notably, the individuals found guilty face up to 10 years in jail and/or fines of up to $420,000 per criminal cartel offence, per the Competition and Consumer Act.

Currently, Deutsche Bank and ANZ carry a Zacks Rank #4 (Sell) while Citigroup has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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