UBS ‘Chinese Walls’ claim ‘begs credulity’, inquiry members say amid ASIC scrutiny

Members of the inquiry that scrutinised UBS executives over an altered research note are not convinced by the account offered by the bank’s boss Matthew Grounds and his staff.

“I don’t still feel an adequate explanation has been [given],” said Labor’s Adam Searle.

“It begs credulity,” said Shooter and Fisher Robert Borsak.

Meanwhile, the Australian Securities and Investments Commission told the Australian Financial Review that its investigation into the matter remains open.

The corporate watchdog would not comment on whether the evidence at Monday afternoon’s hearing matched that given to it in testimony by Mr Grounds and the firm’s utilities research analyst David Leitch.

UBS is one of the advisors on Premier Mike Baird’s proposal to privatise half  the state’s electricity networks and is expected to receive more than $10 million in fees on the estimated $13 billion transaction.

The circumstances around the republication of a UBS research note on the policy – originally titled Bad for the budget, good for the state before being revised to Good for the state – has raised questions about the integrity of the bank’s “Chinese Wall”, which is supposed to separate its research and advisory arms.

At Monday’s parliamentary inquiry head of research Chris Williams said that – after a phone call to Mr Grounds – he told the note’s authors Mr Leitch and Andrew Lilley to rewrite the report.

Mr Williams insisted the “addendum”, with its title change and significant reduction of potentially politically damaging commentary, was his decision.

But Mr Searle said that the term “addendum” was insincere.

“It’s not an addendum. It’s a very different report. And none of the UBS witnesses have given a compelling explanation about the need for the changes that were made,” he said.

Mr Borsak said the change of events between the first note’s publication at 11:15 am and the second at 3:30 pm remained unconvincing.

During this period three calls were made by Premier Baird’s office to Mr Fowler and Mr Grounds, who sit on the bank’s advisory side.

It was also revealed that Mr Fowler, the head of investment banking, was present “by coincidence” during the second conversation between Mr Williams and the two analysts over the required changes.

“It didn’t convince me of anything other than that they are all very good at coordinating their stories,” Mr Borsak said of the account given by the six staff at UBS.

If UBS’s investment banking division is found to have exerted influence on its analysts, that could be a breach of section 912A of the Corporations Act.

Section 912A says an Australian Financial Services licensee must “have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business”.

Australian Financial Review