Dealer blows lid off foreign deal

by Chris Griffith
Published 30 November 1995 in The Courier-Mail


my face


A former ANZ dealer has accused the bank of making undisclosed commissions from foreign currency deals, manipulating overnight orders, and concealing daily currency improvements from "unsophisticated" clients.

In a scathing affidavit and statement tabled in the Senate this week, former ANZ corporate dealer Ian McKay, who worked at the ANZ from 1987 to 1990, said it was common practice for ANZ foreign exchange dealers to deceive and exploit the more trusting clients.

Mr McKay said dealers "were employed to gain clients' confidence and trust and then used it to our advantage in winning deals and improving profitability". He said dealers did not dissuade customers from inadvisable risks.

Mr McKay's statement was tabled this week as part of a concerted campaign by three Federal Coalition backbenchers who are seeking a Royal Commission or Judicial Inquiry into the banks' foreign exchange practices and into foreign currency loans.

The three -- Liberal MP Ken Aldred, and National Party members Ray Braithwaite and Bob Katter -- were yesterday joined by the Enterprise Council, a small business organisation which said a new inquiry was needed, even though the 1991 House of Representatives inquiry into banking and deregulation had examined the issue.

Council executive director Geoff Moss said small business operators did not have the power to tackle the banks in the courts, nor to achieve independent arbitration -- factors he said which contributed to a Royal Commission being necessary.

Mr Moss said Mr McKay had given a more graphic and detailed expose of the deals than anything tendered to the banking inquiry, and it was "straight from the horse's mouth".

A spokesman for the ANZ, Mr David Wilson, said the bank was yet to analyse Mr McKay's statements and therefore would not comment.

Mr Wilson said The Courier-Mail's story should reflect that most criticisms about foreign currency loans and dealings were not directed at the ANZ.

In his statement, Mr McKay said the ANZ's foreign currency retail clients "were generally unsophisticated individuals" who "rang their local branch with orders for foreign currency transactions over $25,000".

"The retail clients were less skilled, more trusting, and captive clients and therefore it was easier to make large profits. For example, we could charge a spread ten times greater than that for a sophisticated client," he said.

"And this was common dealing practice ... I mean this was pursued by one and all in the Treasury."

He said dealers made a second, concealed profit by brokering their foreign currency loans at a lower rate than disclosed to customers. He said an additional margin on a $4m loan could be from $10,000 to $20,000.

He said clients who faxed their foreign currency requests provided another avenue for bank profits.

"By the time you receive the fax and reply to the client with the details of the deal, the rate can move markedly. If the rate improved the bank would keep the profit. If it deteriorated then the client would wear this worse rate."

He said dealers secretly negotiated riskier loans overnight at better than the disclosed rates, but they would not pass the saving to customers.

"The client would actually have to wear more risk that what they knew, and when the more advantageous rate was achieved, then the bank would keep the additional margin as its profit and just tell the client that he got set at the rate that was originally requested," he said.

"We were much more sophisticated and knew a lot more than the clients and we were always able to pull the wool over their eyes. We would always come up with a feasible and acceptable story that would appease them."

Mr McKay said dealers knew the bank was open to legal action if they wrongly warned customers away from risks, and anyway the bank would make no money.

"We would sound authoritative in where the currencies were going, but in reality we had no way of knowing."

He said the bank could have reduced foreign currency risks if clients payed a premium, but the ANZ did not offer this service until 1988 "because the bank was not able to manage the currency risks itself and did not have the systems".

He said new foreign currency dealers received relatively little training.

He said in the bank once failed to disclose "dealing slips" showing the secret commissions in a 1991 court case.