Rate rigging: ANZ, NAB confirm US class action over alleged BBSW manipulation

| Thu Aug 18, 2016 7:12pm EDT Short-sellers smell blood as Japan Inc wounded by accounting scandals The logos of Japan's robot venture company Cyberdyne are seen on the Lower Limb Model HAL (Hybrid Assistive Limb) for welfare use at the Cyberdyne studio in Tsukuba, north of Tokyo July 22, 2014. REUTERS/Yuya Shino By Umesh Desai and Michelle Price | HONG KONG Short-sellers who made their names and fortunes wiping billions off Chinese and Southeast Asian companies are setting their sights on Japan after a series of accounting scandals amplified concerns about weak corporate governance there. Until recently, corporate managers in Japan have enjoyed relatively limited scrutiny of their governance standards and accounting rigor, and a cosy tradition of cross-holdings between companies has relegated the status of minority shareholders and the importance of adequate disclosure. But as the government of Prime Minister Shinzo Abe has tried to clean up corporate culture and activist investors have begun to kick the tires of Japan Inc, short sellers are finding fertile ground for profit. On Tuesday, prominent U.S.-based short-seller Citron Research launched an attack on Japanese robotics company Cyberdyne (7779.T), claiming it was "the most ridiculously priced stock in the world" and had misled retail investors over its technology assets. Cyberdyne, which closed down 7 percent on Tuesday, dismissed the report as an attempt to push its stock price down. It is not known whether Citron holds a short position in Cyberdyne. It is the second attack on a Japanese company in less than a month and the sixth since December 2015, when Well Investments Research challenged trading firm Marubeni (8002.T), the first such campaign in Japan tracked by Activist Shorts Research. According to Activist Shorts, the six Japan campaigns, half of them directed at Cyberdyne, have generated average losses of 23 percent, which means profit for short-sellers, who sell borrowed stocks and buy them back more cheaply. It said that is among the top half of the 46 activist short-sellers to have launched campaigns in the past year and is more than double the year-to-date return of Asia's main benchmark .MIAPJ0000PUS. The phenomenon of short-sell attacks took hold between 2009 and 2011, with investment and research firms such as Muddy Waters Research and Alfred Little attracting international attention for their campaigns against overseas-listed Chinese companies including Sino-Forest and Silvercorp (SVM.TO). HIGHER STANDARDS Short-sellers and analysts said they expected more attacks on Japanese companies as regulators in China and Hong Kong fight back against short-sellers, and Abe's campaign flushes out deficiencies. “As Japanese markets embrace the values of Abenomics, investors of all types, shareholders, short-sellers will insist that listed companies hold themselves to higher standards of transparency, accountability and corporate governance," said Soren Aandahl, director of research at Glaucus Research. "That in turn makes short investment opinions more impactful," he added. Glaucus itself sent shares in trading firm Itochu Corp (8001.T) tumbling 10 percent last month by claiming it had inflated profits through creative accounting, the biggest attack on a Japanese company by market value so far. Itochu denied the claims. Aandahl declined to say if Glaucus was preparing more Japan campaigns but confirmed it was conducting research on other Japanese companies. Revelations last year that Toshiba (6502.T), the laptops-to-nuclear conglomerate, had overstated profits by $1.3 billion over several years sparked a public debate over Japan's inward-looking corporate culture, in which boards have typically held investors at arms' length. The Toshiba investigation identified a corporate culture in which the management could not be challenged and didn't always heed its external auditors. The scandal led the Japan Financial Services Agency to step up scrutiny of auditors, while the Japan Institute of Certified Public Accountants has conducted several quality-control inspections of its members. In June 2015 the government also implemented a new corporate governance code in a bid to stimulate foreign investment. "Right now, there's an interesting mix of factors at play in Japan. The Toshiba scandal could be seen as a blow to investor confidence, but that and Abe's moves also created the opportunity for short-sellers to spark a conversation on overvalued companies," said Claire Stovall, research analyst at Activist Shorts. Also In Business News Wall St. inches up with energy gain, Wal-Mart Exclusive: Viacom board expected to meet tonight to discuss settlement with Redstone Fed's Williams says September rate hike makes sense Labor market firming; factories still struggling "In a country where Well Investments has described an acceptance of poor disclosure, partly built on corporate relationships and a laissez-faire trust in management, investors and regulators will likely be sensitive to negative research." OPPORTUNITIES Analysts and short-sellers said they saw ripe shorting opportunities among Japan's commodities trading companies, which could be prone to aggressive accounting tactics following the global commodities slowdown. GMT Research, which analyses company accounts for hedge funds, said earlier this year that the book values of Japanese trading companies were overstated by as much as two thirds in some cases. "Companies reclassify their investments and affiliates all the time. In this case, it is probably the pervasiveness and the magnitude that warrant closer scrutiny on the practice," said trader and short-selling specialist Laurent Bernut. Short-sellers burnished their credentials from 2010 onwards by exploiting concerns over poor corporate governance and accounting practices at more than 100 Chinese companies, in some cases exposing outright frauds at the likes of Sino-Forest and China Metals Recycling. But a crackdown by authorities in Hong Kong, the main market for offshore Chinese stocks, has made such attacks riskier, while investors are increasingly pricing in doubts over Chinese companies, making such attacks less lucrative. Citron Research's head Andrew Left is currently awaiting a Hong Kong tribunal ruling over allegations by the Securities and Futures Commission he manipulated the market when he targeted Chinese property developer Evergrande (3333.HK) in 2012. Left, whose influence has grown following his campaign against U.S.-listed Valeant, did not respond to a request for comment but has said he does not plan to target more Hong Kong companies, while market conditions in Japan were attractive. (Additional reporting by Emi Emoto in Tokyo; Editing by Will Waterman) ====================================== Facebook Twitter More Rate rigging: ANZ, NAB confirm US class action over alleged BBSW manipulation By business reporters Thuy Ong Posted about an hour ago The four big banks' logos PHOTO: All four major banks are expected to eventually be caught up in ASIC's action. (AAP) RELATED STORY: Three big banks are accused of rigging rates. Here's how it affects you MAP: Australia ANZ and NAB have both confirmed they are among 17 banks and two international broking houses named in a class action relating to the alleged rigging of the bank bill swap rate (BBSW) and bank trading in the United States. The complaint was launched by two US-based investment funds and a derivatives trader, and the case has commenced in the United States District Court for the Southern District of New York. "The action names a number of defendants, including NAB, and references the proceedings brought by the Australian Securities and Investments Commission (ASIC) in relation to BBSW," NAB said in a statement. "As we have stated previously, NAB does not agree with the claims by ASIC in relation to BBSW." ANZ said it would be "vigorously defending the US class action complaint". "ANZ notes there has been no allegation by ASIC of collusion between it and other institutions," the bank said in a statement. BBSW is the rate set in a five minute window everyday that determines what banks charge to lend to each other. For banks, small differences in the rate that is set can equal many millions of dollars in profits or losses. For the average consumer, the BBSW is a benchmark rate on many corporate loans, and can affect business loans, mortgages and credit cards. ASIC in June said it would take three of Australia's major banks - NAB, ANZ and Westpac - to the Federal Court over the alleged rigging, with the corporate regulator describing some of the banks as being involved in "unconscionable conduct and market manipulation". Macquarie, HSBC among those in class action Among the Australian and international banks being sued are ANZ, NAB, Westpac, Macquarie, Deutsche Bank, HSBC, JP Morgan, and Citi according to court filings. Westpac has flagged it has not been formally served with any proceedings, but said it was aware of the class action filed in New York. The bank said it denies the "allegations in this claim and, if served with the claim, will defend those allegations vigorously". One source with knowledge of the matter told the ABC that the lawsuit was speculative in nature and was based on ASIC's civil case against ANZ, NAB and Westpac for alleged manipulation of the BBSW. The Commonwealth Bank is also expected to be included in ASIC's case. ASIC has already accepted enforceable undertakings from UBS, BNP Paribas and the Royal Bank of Scotland in relation to the BBSW fixing scandal. BBSW is the rate set in a five minute window everyday that determines what banks charge to lend to each other. For banks, small differences in the rate that is set can equal many millions of dollars in profits or losses. For the average consumer, the BBSW is a benchmark rate on many corporate loans, and can affect business loans, mortgages and credit cards. ASIC in June said it would take three of Australia's major banks - NAB, ANZ and Westpac - to the Federal Court over the alleged rigging, with the corporate regulator describing some of the banks as being involved in "unconscionable conduct and market manipulation". From other news sites: From other news sites: Australian Financial Review: Big four banks sued by US hedge funds over BBSW