New Nedbank CEO Jason Quinn will have to fend off a R2.8bn lawsuit launched against the lender by the Special Investigating Unit and Transnet over interest rate swap transactions that took place nearly a decade ago.
The bank on Friday said it would defend its interests in the lawsuit, which if the SIU and Transnet succeed, will wipe off about 20% of the bank’s R15.7bn 2023 headline earnings.
Nedbank, which is set to release its interim results next month, said the allegation by the SIU and the state-owned freight and logistics group that it made a profit of more than R2.7bn regarding the swaps was untrue.
“The sales margin earned by Nedbank in respect of the swaps was market-related and amounted to less than R43m,” the bank said in a market update.
“The swaps were commercially sound and the return on equity earned by Nedbank was fair, reasonable and appropriate at 15.5% over the life of the transactions. Nedbank will strongly defend the litigation against it and will pursue its counterclaims against Transnet and others.”
It is not entirely surprising that the matter will be settled by the courts as Transnet and Nedbank a few months ago indicated that the mediation talks had collapsed, largely due to the insistence by Transnet that Nedbank accept it acted in a corrupt manner regarding interest rate swap transactions in 2015 and 2016.
Nedbank responded by saying that it was unwilling to take responsibility for the governance failures that led to Gupta-linked Regiments’ looting of the state-owned entity’s coffers.
“The bank’s willingness to discuss any potential settlement in mediation has always been exclusively on the basis that any settlement should never be construed as being an admission of guilt or involvement in corruption on Nedbank’s part,” it said at the time.
Approached courts
This impasse caused the SIU and Transnet on Friday to indicate they had approached the courts for relief.
“Transnet and the Special Investigating Unit have jointly instituted proceedings against Nedbank out of the Johannesburg High Court to set aside interest rate swap transactions, which took place in 2015 and 2016 between Transnet and Nedbank, and under which Nedbank profited in excess of R2,736,094,704.82,” the two said in a joint statement.
“Transnet and the SIU also seek to recover the amounts that were unduly paid by Transnet to Nedbank under the transaction.
“The interest rate swap transactions featured under the report of the judicial commission of inquiry into allegations of state capture, corruption and fraud in the public sector and formed part of a greater scheme to misappropriate and divert public funds from Transnet to Gupta-linked entities.”
Chief justice Raymond Zondo recommended in the state capture report that certain transactions involving Nedbank in which Regiments acted as an adviser to Transnet be subject to further investigation.
Nedbank said it had no evidence that it behaved corruptly and the swaps were “commercially sound and the bank’s margin was reasonable for the risks assumed”.
“Considering internal and independent external reviews commissioned by them, the Nedbank board and management remain satisfied that Nedbank internal governance procedures were followed in respect of these swaps and that there is no evidence of any Nedbank staff dishonesty, corruption or collusion,” the lender said.
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