Transnet and the Special Investigating Unit (SIU) have taken legal action against Nedbank in the Johannesburg High Court where they are asking it to set aside interest rate transactions that allegedly led to the bank making a profit of more than R2.7 billion.
However, Nedbank said in a statement on Monday that it would “strongly defend” itself against the litigation and that no evidence of dishonesty or corruption had been found against its staff. The bank said it would file counterclaims against Transnet and others.
Transnet and the SIU said in a statement on Friday that the interest rate swap transactions which had taken place in 2015 and 2016 between Transnet and the bank “and under which Nedbank profited in excess of R2 736 094 704” were “void and unenforceable” in their view. However, Nedbank has denied this, claiming the bank earned a “market related” margin of less than R43 million.
Interest rate swaps are forward contracts in which one stream of future interest payments is exchanged for another based on a set principal amount. Interest rate swaps can exchange fixed or floating rate payments to reduce or increase exposure to interest rate fluctuations.
“Transnet and the SIU also seek to recover the amounts that were unduly paid by Transnet to Nedbank under the transactions,” Transnet and the SIU said.
The interest rate swap transactions featured in the report of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector and allegedly “formed part of a greater scheme to misappropriate and divert public funds from Transnet to Gupta-linked entities”, they said.
“Transnet and the SIU are of the view that the interest rate swaps are void and unenforceable under the Public Finance Management Act, alternatively (they) 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,” Transnet and the SIU said.
They added that the entities had collaborated closely in preparation for the court proceedings, which included the SIU uncovering evidence critical to the case.
Nedbank confirmed that review proceedings had been served on the bank.
“Nedbank will strongly defend the litigation against it and will pursue its counterclaims against Transnet and others. To date, no evidence has been found, or presented to Nedbank, of any Nedbank staff dishonesty, corruption or collusion,” the bank said.
“To the extent that there was corruption this was on the part of the Regiments Group and Transnet’s staff members and not Nedbank. Nedbank will not be held liable for any governance failures at Transnet.”
The bank said its internal and independent external reviews had left its board and management “satisfied” that its internal governance procedures had been followed in respect of the swaps and that there was no evidence of staff dishonesty, corruption or collusion.
“The joint media statement by Transnet and the SIU of July 26, which states that Nedbank profited in excess of R2 736 094 704 in respect of the swaps is incorrect. The sales margin earned by Nedbank in respect of the swaps was market related and amounted to less than R43 million,” Nedbank said.
“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. As the matter is now pending before the courts, Nedbank is not able to comment further.”
