Nedbank again denied any dishonesty, corruption, or collusion on the part of its staff after the Special Investigating Unit (SIU) and Transnet announced on Friday that they have jointly instituted legal proceedings against the bank to set aside interest rate swap transactions that occurred at the height of state capture.
“Nedbank will strongly defend the litigation against it and will pursue its counterclaims against Transnet and others,” the bank said in a SENS announced on Friday.
The transactions, which occurred in 2015 and 2016, involved an agreement between Nedbank and Transnet to swap the interest rate on existing loans for numerous future interest rate payments based on financial derivatives.
A joint media statement by Transnet and the SIU on Friday stated that Nedbank profited in excess of R2.7 billion in respect of the swaps. But Transnet said this was incorrect.
“The sales margin earned by Nedbank in respect of the swaps was market-related and amounted to less than R43 million. 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.”
Transnet and the SIU’s statement said the transactions featured in Chief Justice Raymond Zondo’s report on state capture “and formed part of a greater scheme to misappropriate and divert public funds from Transnet to Gupta-linked entities.
Transnet and the SIU are of the view that the interest rate swaps are void and unenforceable under the Public Finance Management Act, alternatively contravene section 217 of the Constitution and are contrary to public policy. There is sufficient basis for the sought relief and Nedbank must account for its involvement and conduct in the swap transactions.”
An attempt to reach a settlement between Nedbank and Transnet through mediation collapsed in May.
Regiments Capital association
The contested transactions occurred when the Gupta-linked Regiments Capital was the financial adviser to state-owned enterprises, including Airports Company SA (ACSA) and Transnet.
Nedbank had a formal business relationship with Regiments dating back to 2009 in which the company acted as an advisory firm that earned fees for transactions it facilitated for the bank.
Chief Justice Raymond Zondo’s report on state capture recommended that law enforcement agencies investigate Nedbank and its employees for their alleged role in a “corrupt” contract involving ACSA and Regiments.
The report also recommended that the National Prosecuting Authority’s Asset Forfeiture Unit investigate the possibility of recovering money from Nedbank over the interest rate swap contracts. Although the commission acknowledged it did not have time to hear Nedbank’s version of events, it said the relationship between two of the bank’s dealers and Regiments director Eric Wood appeared to have contravened the Prevention and Combating of Corrupt Activities Act.
A report by amaBhungane in 2021 alleged that Nedbank collaborated with Regiments, paying it more than R95m in commissions for directing public sector clients towards Nedbank’s financial products. These arrangements, which allegedly included undisclosed additional millions from the Transnet deals, often increased costs for Regiments’ clients without their knowledge.
Nedbank countered that Regiments, not the bank, was Transnet’s appointed adviser. “Nedbank did not advise Transnet on the swaps at all and did not pay any fees to the Regiments Group in respect of the swaps,” it said.
‘No evidence of corruption or collusion’
In its 2023 integrated report, published in April, Nedbank chief executive Mike Brown said the bank was co-operating fully with various inquiries and investigations in respect of the interest rate swap transactions.
He said nothing had come to Nedbank’s attention in any of these inquiries and investigations that would change its view that there was no evidence of any wrongdoing, collusion, or corruption by Nedbank or any of its employees. If these transactions were tainted by corruption on the part of Regiments, or Nedbank’s clients or their employees, “Nedbank was unaware of this at the time of the transactions and acted as a reasonable banker based on the knowledge we had at the time”.
Brown said Nedbank’s fees and returns were market-related and all legal documentation and authorisations for the transactions were in place. “Given this position, we will strongly defend any litigation that may be brought against us.”
In its SENS on Friday, the bank said its board and management remain satisfied that Nedbank’s internal governance procedures were followed in respect of the swaps, and that there is “no evidence of any Nedbank staff dishonesty, corruption, or collusion”.
