(Note strong language in the 9th paragraph)
By Sonali Paul
MELBOURNE (Reuters) - The Australian corporate regulator accused Westpac Banking Corp (WBC.AX) of playing a leading role in the widespread manipulation of an important financial trading rate as it took the country's No. 2 lender to court on Tuesday.
In an opening address to the Federal Court, the Australian Securities and Investments Commission (ASIC) laid out its case against Westpac, saying the bank was motivated to influence the Bank Bill Swap Rate, a crucial rate for the Australian finance system usually referred to as BBSW, because billions of dollars worth of its products were affected it.
ASIC has accused Westpac and rivals National Australia Bank Ltd (NAB.AX) (NAB) and Australia and New Zealand Banking Group Ltd (ANZ.AX) (ANZ) of rigging the BBSW to inflate profits from 2010 to 2012.
All three banks have denied wrongdoing but NAB and ANZ agreed to settle soon before hearings began, leaving Westpac to defend itself alone in a civil hearing. Westpac has been accused of 16 counts of unconscionable conduct, fewer than the others.
A Westpac spokesman said it could not comment on the case as it was before the court.
ASIC's lawyer, Philip Crutchfield, said Westpac was a major contributor to BBSW rigging, on some days dominating 100 percent of bank bill purchases at a time when a growing range of its products were priced with reference to the benchmark rate.
"The temptation to manipulate the rate became greater because much more of Westpac's book was riding on these derivative products," Crutchfield told the court.
Crutchfield said that rather than hedge its position, Westpac actively sought to manipulate the sensitive rate-setting processes, playing the court what he said were recordings of Westpac traders discussing their bill purchases.
In one recording, a man Crutchfield identified as a Westpac trader could be heard saying, "I'm going to fuck the rate set."
In another recording, a woman Crutchfield identified as a Westpac trader could be heard saying, "In our team here we manage BBSW and the rate set so we actually... we kind of manage and monitor where BBSW gets set".
Whether Westpac ever succeeded in manipulating a BBSW was immaterial, Crutchfield told the court, adding that ASIC would only seek to prove that Westpac planned to manipulate it.
The rate-rigging allegations, which have already drawn lawsuits from U.S. funds, are but one of several scandals engulfing Australia's highly-concentrated banking sector.
Like the London Interbank Offered Rate (Libor), a global interest rate benchmark used to price financial contracts worth $350 trillion, BBSW sets the base pricing for a broad range products such as bonds, home loans and credit cards.
Banks have been fined billions of dollars for trying to manipulate the Libor benchmark, with U.K. regulators now considering an alternative for the index.
The Australian hearing continues.
(Reporting by Sonali Paul; Writing by Byron Kaye; Editing by Sam Holmes)