ANZ settles NZ mis-selling case

ANZ New Zealand has settled an investigation into mis-selling of swaps agreements to farmers and has agreed to pay NZ$18.5 million into a compensation fund.

New Zealand's Commerce Commission and Financial Markets Authority (FMA) announced the settlement agreement with ANZ after more than two years of investigations into almost NZ$5 billion worth of swaps agreements issued between 2005 and 2009.

Farmers alleged ANZ and its now defunct National Bank brand marketed the swaps to them as similar to fixed rate agreements, but were surprised when ANZ increased margins on top of underlying swap rates and charged break fees to those wanting to take advantage of a sharp fall in short term rates through 2008 and 2009.

The Commerce Commission said ANZ had agreed to admit in the High Court "that it engaged in certain conduct that was misleading to some eligible customers."

The Commission would seek a High Court declaration next year that ANZ breached the Fair Trading Act, although ANZ said it did not accept the Commission's view.

"The Commission considers that ANZ's behaviour led some customers to believe that margins on the loan connected with the swap would not change, early termination amounts would be similar to break costs for equivalent fixed rate term loans, and that swaps would be for them a good substitute for a fixed rate term loan," Commission Chairman Mark Berry said.

"In reality, ANZ could, and in some instances did, increase margins, and early termination amounts could be significantly higher," Berry said.

The NZ$18.5 million would be distributed to 178 ANZ customers and represented an approximated amount of losses that the Commission thought it could have recovered in a successful trial. Berry said a contested hearing would have led to further delay and cost.

"We are also pleased that ANZ has put its hand up and admitted that some of its conduct was misleading," Berry said.

ANZ is also paying NZ$500,000 to cover the Commission's costs. Commonwealth Bank of Australia's ASB and Westpac New Zealand were still in discussions over similar allegations against them, the Commission said.

The FMA said it also viewed ANZ's marketing of the swaps agreements as misleading, particularly relating to statements that swaps "were like fixed-rate loans, but more flexible."

The FMA said ANZ had provided enforceable undertakings about its future conduct and had engaged a third party to review its processes around swaps contracts and foreign exchange forward contracts.

ANZ's Managing Director of Agri-business, Graham Turley, said ANZ was pleased to be the first bank to have settled with the authorities. He said the bank had been working with a small number of mainly former National Bank customers to resolve their complaints.

"Notwithstanding customers had access to, and often took legal and other professional advice before entering into their rural interest rate swaps, this arrangement with the Commission brings certainty and avoids years in the courts for everyone," Turley said.

Janette Walker, an advocate for the affected farmers, said she was disappointed by the size of the settlement, but felt vindicated by ANZ's acknowledgement of misleading behaviour.

Walker told Radio New Zealand some farmers may choose not to accept the settlement and could carry on with their own class action.

"Some of the farmers lost their farms and lost millions of dollars, let alone increased interest charges and break fees, and they might get only NZ$100,000," Walker said.

"I am in contact with lawyers in the UK who have been very involved with the swaps litigation in the UK so they're having a look at some stuff I've sent them," she said.

"For me it's just the start."