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ANZ is being sued, how will the share price respond?

It hasn’t been a good week for Australia and New Zealand Banking Group (ASX: ANZ), the bank is starting the weekend with news that it is being sued in New Zealand.

According to reporting in the Australian Financial Review, the bank’s New Zealand division is facing legal action by investors who lost money after the collapse of a Ponzi scheme in 2012.

The ringleader of the Ponzi scheme, David Ross, was jailed for 10 years and 10 months in 2013 for his part in the collapse of Ross Asset Management. There has already been a court ruling that 639 investors had claims of NZ$125 million due to the collapse.

The reason why ANZ is being dragged into this is because these investors are claiming that ANZ was negligent in its role of managing the fund manager’s bank accounts.

The AFR quoted spokesman for this group of investors saying “The claim is based on our view that the ANZ either knew that David Ross at Ross Asset Management was running his business as a Ponzi scheme or it should have known how one of its large fund management clients was operating its accounts. The ANZ is one of the largest fund managers in New Zealand and Australia – they know how client funds are meant to be managed.”

How much could this claim be? No-one knows yet, but with LPF Group (the largest litigation funder in New Zealand) backing the case, it is going to sizeable with speculation that it will likely run into the tens of millions.

Foolish takeaway

Of course ANZ strongly denies these allegations, but it shows that ANZ doesn’t have it easy at the moment with royal commission remediation, higher capital expectations from regulators and now legal cases to contend with.

Although the 8.4% dividend yield is attractive, I don’t think ANZ is a buy today.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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