South Africa’s Nedbank denied any wrongdoing on Monday after three local news sites reported on its links to a scandal that led to large losses at public entities, sending the bank’s shares down almost 9%.
Investigative outlet amaBhungane, the Daily Maverick and News24 said Nedbank paid billions of rand in fees to a company called Regiments Capital for involving it in deals that lost money for municipalities and state-owned companies.
The article published by the three news sites said the commissions were often not disclosed to clients Regiments was supposed to be advising impartially and that Nedbank knew or should have known this, among other allegations.
In a statement responding to the article, Nedbank said there was nothing unlawful or unusual about its relationship with Regiments, although with hindsight it might have acted differently.
“Our internal and external reviews confirmed that Nedbank has at no time acted unlawfully in its dealings with Regiments and the affected counterparties,” Nedbank said.
An email to the address on Regiments’ website seeking comment bounced back, while a call to the number on its website went to the voice mail of another firm. Reuters could not immediately reach any legal representatives for Regiments.
Nedbank’s full statement follows:
Nedbank response to amaBhungane article titled State Capture: The case against Nedbank
Nedbank has noted the article published by amaBhungane, Daily Maverick and News24 on 8 February titled, “State Capture: The case against Nedbank”.
This matter has been extensively covered in the media over several years and more recently at the Zondo Commission. The Nedbank board and management commissioned detailed internal and independent external reviews of the transactions and these reviews found no evidence of any collusion or corruption by Nedbank.
While we value the importance of objective investigative journalism, the selective allegations and narrative in the article are unfortunately, in our opinion, based on assumptions that fail to properly consider the legal framework involved, the applicable contractual and legal obligations of the various parties as well as the technical aspects of the transactions.
Our internal and external reviews confirmed that Nedbank has at no time acted unlawfully in its dealings with Regiments and the affected counterparties; or Regiments’ clients. Nedbank strongly refutes the inference made in the article that it was complicit in any alleged scheme by Regiments to defraud its clients or to extract undue benefit from them.
The Corporate and Investment Banking clients of Nedbank are sophisticated entities. We correctly rely on the legislative framework regulating the banking and financial services sector as well as the financial conduct of public entities. In addition, we rely on their directors, office bearers and financial control structures to manage their own internal affairs and to ensure that their governance responsibilities are adhered to. Given the fact that Nedbank was not an adviser to the affected Regiments’ clients regarding these transactions, Nedbank was not, and is not in a position to challenge the commercial objectives of these clients.
The Introduction of Derivatives Transactions agreement was concluded on 25 May 2009 between Nedbank Capital (as it then was) and Regiments Capital on the express premise, which was clearly documented, that: 2
- a) Regiments undertook to disclose to its clients that it would receive a fee from Nedbank Capital, which would be included in the pricing agreed between Nedbank Capital and the client; and
- b) Regiments confirmed that it was not acting as Nedbank Capital’s agent.
There was nothing unlawful or unusual about the agreement which Nedbank had entered into, on the understanding that Regiments would adhere to its terms, coupled with its obligations as a registered Financial Services Provider (‘FSP’). Regiments was obliged to comply with the Financial Advisory and Intermediary Services Act and General Code of Conduct for FSPs. These required Regiments to disclose its fees to its clients and to avoid conflicts of interest.
If Regiments failed to do so, and/or otherwise engaged in improper or unlawful conduct, Nedbank cannot be held accountable.
Nedbank was not aware at the time of entering into any of the transactions in question of any associated unlawful or corrupt conduct by Regiments. Nedbank denies that it was complicit in any such unlawful or corrupt conduct that may have been perpetrated by Regiments and others. At the time of the transactions Nedbank had no information indicating that the internal governance process of certain companies, or certain key role players had been compromised to the extent that has subsequently become apparent through investigative journalism and processes like the Zondo Commission. Had Nedbank been aware of the compromises in these companies, with the benefit of hindsight, we would likely have taken different actions.
Nedbank’s activities are conducted ethically and transparently for the benefit of our clients and stakeholders. All Nedbank’s client relationships are subject to the Financial Intelligence Centre Act, governance and regulatory reporting requirements, to which we strictly adhere.
We reiterate that Nedbank has a zero tolerance for corruption, and we expect all of our stakeholders, including our clients, service providers and staff, to conduct themselves ethically and with integrity.
Nedbank is supporting, and will continue to support and co-operate with, the relevant authorities and commissions.
Nedbank shares closed down 8.87% versus a 1.9% decline for the South African banking index on Monday, but recovered somewhat on Tuesday – up over 2% to R129.26 by 13:00.