From the evidence, the CBA’s and BankWest’s answers to the recent Senate Banking Inquiry constitute a comprehensive pack of lies, asserts Associate Professor Evan Jones.
THE SENATE ‘post-GFC banking sector’ inquiry held hearings from 8th to 10th August. Behind the diversionary terms of reference, the real agenda has been the Commonwealth Bank’s foreclosure of almost 1,000 BankWest customers after the CBA’s foreshadowed takeover of BankWest in October 2008.
Testimony from the CBA/BankWest victims who appeared at the Hearings is summarised here, in Part 1.
What about the two banks’ responses?
The CBA appeared on the 9th with a posse of four, including one Michael Cant, GM Retail. Cant remained silent but provided appropriate symbolism for the bank’s persona. Team leader was General Counsel David Cohen. Cohen is a person of considerable presence ― seemingly confident that, in spite of these less than deferential Senators, his employer has the appropriate connections to ensure that nothing untoward will transpire.
CBA/BankWest victim Guy Goldrick astutely commented (the 10th), and he is right:
“CBA, the behemoth of the Australian banking industry, assumes that no-one can touch them as they are too big. Their modus operandi for anyone who dares to take them on in court is, ‘Our pockets are deeper than yours’. They assume no-one will believe they have done wrong or lied because they are Australia’s biggest bank. They assume they are above the law and the government will not dare go after them.”
Cohen was part of the CBA senior management team that brazened its way through the Storm Inquiry hearings on 4 September 2009. Cohen dissembled:
“the bank has learned from mistakes that we have made in relation to some of our lending to Storm customers.”
Then why is there both a class action pending by Storm borrowers and Storm-related litigation by ASIC against the CBA?
It appears that what the bank learnt was that it needed to further shore up its political immunity. The CBA moved directly from the racket involving Storm Financial, which the GFC brought to an end, to the racket involving BankWest, which the GFC opened up. Boom or crisis, it’s a win-win situation. The Storm Inquiry let the CBA off with a mild slap on the wrist.
Cohen’s set speech comprised the predictable blather — big and strong company, sailed through the GFC, strong supporter of SMEs, admirable in every respect, etc. The Chair intervened to ask if they could get on with what matters.
Cohen then added that scurrilous rumours were being spread about a presumed ‘clawback’ arrangement in CBA’s purchase of BankWest from HBOS that allowed impairment charges to be deducted from the purchase price. Cohen claimed that loan impairments unearthed up to the purchase date of 18 December 2008 were a factor in the determined price, but not for ‘any loans that became distressed’ subsequent.
Cohen admitted that the CBA had BankWest in its sights for some time because of its ‘brand’ presence in WA (ergo, we’re not interested in BW’s East Coast customers), but denied that there was any pressure or invitation from the government or regulators to pursue the acquisition.
There then followed an exchange regarding the CBA’s responsibility for the BankWest shakeout. The exchange is a bonbon for students of semantics. Cohen claimed that BankWest was now 100 per cent owned by CBA, the CBA had sent in a new CEO (Jon Sutton), and Board representation, but that BankWest operated 100 per cent autonomously.
Senator Eggleston: “Did you provide direction as to what Bankwest should be doing in terms of realising the value of properties that they may have had mortgages on, and suchlike?”
Cohen: “No. We did not give direction as to how Bankwest should deal with a particular loan, for example, or give direction as to what price a particular security property should be sold for. … CBA’s awareness was at a high-level, a managerial level, but we did not delve into individual cases.”
The good Senator persists: “Why was it considered necessary to pursue these clients of Bankwest [it would seem quite unreasonably and quite unethically] with such vigour? I will quote some of the comments in the submissions. …
Cohen: “… the submissions that you have received, and perhaps some of the conversations that you have had, present only half the story. You do not have … the bank’s side of the story. At the end of the day, these situations are resolved on the facts. The facts are crucial.
“What I can say at a general level is … there is absolutely no commercial advantage and therefore no incentive whatsoever for Bankwest or the Commonwealth Bank to put borrowers in default. Both parties lose out. … There is always an incentive to try and help the customer to work through difficulties, whether it is through extensions of loan, reduced interest rates, reduced payments or capitalising interest. Whatever the case may be, we do try and get to that point first and foremost.”
Eggleston again: “… but the range of complaints that we have received in the form of submissions suggests that there was a systemic approach which was quite brutal in terms of dealing with these customers. It was quite unreasonable. This committee, a couple of years ago, did an inquiry into the liquidators. … we were struck by the comparisons and similarities between the quite unethical behaviour and quite vicious behaviour of the liquidators in dealing with the businesses which they were put in a position to liquidate, in terms of charging high fees, stripping assets and leaving these people completely bereft, and the reports we were receiving about the behaviour of Bankwest. We find that very troubling in terms of the ethics, if you like, of the whole banking industry and of the role CBA, by implication, in having had someone on the board of Bankwest when these events were occurring.”
Cohen in response: “What I would say in relation to the number of submissions you have received is that they have been well orchestrated. We should not resile from the fact that, as you know, there is an unhappy banking campaign that has been well orchestrated and has drummed up a number of submissions. … The Insolvency Practitioners Association … pointed out very clearly that its members experience on a regular basis business owners who have completely unrealistic expectations around the value of their properties or business and who are often in denial about the problems that they have contributed.”
Senator Bishop then piped up to note that the CBA’s annual report for 2009-10 demonstrated that
“It was the Commonwealth Bank, according to its own statement here, that initiated the review of the loan portfolio.”
Blather from Cohen.
Bishop again: “So why are you trying to distinguish between the parent organisation having full knowledge after investigation of the loan review, by saying that it was Bankwest officers that initiated the review and had the knowledge?”
More Cohen dissembling. And Senator Bishop has the last word:
“So, to the extent that you had purchased an organisation that was either essentially insolvent or close to bankruptcy, and the fact that the bank organised a team of officers to properly examine the loan book, the fact that you found a whole range of loans that were of dubious quality, and the fact that you had to write off hundreds of millions of dollars in successive years, is neither here nor there, is it?”
So much for the CBA.
On to BankWest, appearing on the 10th.
There appeared one Suzanne Tindal, Chief Executive, Strategy and Reputation. Comparable to the CBA’s Cant, this was a silent if symbolic presence. Impossible jobs are increasingly being handed to females to front for an institution’s sins. This practice appears to be the testosterone-driven male bastions’ concept of equal opportunity. Ms Tindal’s name heads BankWest’s odious submission to the Inquiry (#80), but one can be sure that she was not the author. Also fronting were Robert De Luca, Managing Director, and Ian Corfield, head of BankWest Business. The youngish Mr De Luca presented the customary opening blather, but Cornfield appeared to be the Boss Cocky, with De Luca playing water carrier.
From De Luca:
“There have been comments to the inquiry that valuations were systematically decreased. This is incorrect. It makes no sense that valuations or sales prices would be purposely lowered. These assets are relied on to meet the bank’s debt and selling these assets for a lower price would often result in a greater loss for the bank. When selling assets, insolvency practitioners have a legal obligation to achieve fair market value. Value[r]s were commissioned by the bank to provide a level of independence in the process. It is covered in some submissions by industry bodies; valuers abide with a significant level of professional obligations.…
“The majority of customers who have made submissions relate to property investment and development transactions. … Unfortunately, as we know, sometimes difficulties do arise and it is in the bank’s interests to assist customers if that occurs. We maintain that the cause of the difficulties arose from a combination of economic factors, not through any inappropriate action of the bank. The global financial crisis was an unseen and unwelcome event for banks and customers alike. In cases where clients were impacted we worked closely with them to try and improve their position.
“There has been a relatively small group of customers who have aired grievances and represent less than 0.01 per cent of our 1.1 million customers.”
1.1 million customers? At best, that number tallies all customer categories including retail. How to lie with statistics 101. The issue is, what drove the defaults of the 1,000 developers and hoteliers? BankWest’s answer: the GFC is to blame, in combination with customer incompetence. More, we – BankWest – flogged ourselves trying to save these poor sods but ultimately to no avail – they were unsaveable. C’est tout. BankWest was given an hour and a half, but its spiel could have been delivered in 15 minutes.
The flavour of some exchanges is pertinent.
The bank-valuer relationship
Williams:When you employ a valuer to do their job, should they be done at arm’s length distance from you and then they just give the report?
De Luca:That is the way it operates.
Williams: Then why have I seen an email where one of your bank managers is suggesting to the valuer to devalue the assets by 20 per cent? …
Corfield:… The reality of that situation … is that in all cases we try and sensitise valuations to understand what would happen if the value of certain assets changes and what the impact on the customer would be. …
Bushby:You also note in your submission that the results of those valuations are not generally disclosed to the customer.
Corfield:Yes, they are.…
De Luca:Not in all cases. Not in settling default cases.
Williams:Why not? …
De Luca:In many cases when they are in default and receivers have been appointed the receiver receives the valuation.
Bushby:But that does not help the customers?
Mr De Luca:… At the end of the day the receivers are trying to get the market value for the sale of the asset. …
Bushby:A lot of the concern and confusion of people who are subjected to default proceedings, particularly when it is to do with their loan-to-valuation ratio, is to do with the fact that they never actually get to fully understand why what is happening to them is indeed happening.
Corfield:It is a difficult balance. That is why in most instances we do share it with the customer. But when the receiver is in they are absolutely bound to get fair market value for what they have in front of them. And, whilst I am sure that most customers would treat that document confidentially, receivers very often make that call that they are not prepared to take that risk.
Whence developer ‘difficulties’?
Williams: Why did you cut off funding to projects like Mr Goldrick’s? He was developing a property and needed $6 million or so to complete a $15 million project and you stalled him for seven months. … When you agree to take on a job – and I view a bank’s relationship with a customer as a partnership – because you think it is sound and secure, you lend them the money and when it is completed you get paid. … Why did you pull out of that partnership so early?
Corfield: Mr Goldrick is not actually a customer of Bankwest and never has been. He is a broker of finance. I think the development that he is talking about, which was not directly his, was in a number of difficulties. When developments get into difficulties, there are debates between the bank and the customer as to whether or not it is better to put more money in to finish the development at that point.
The foreclosure of incomplete projects
Williams: But why would you sell up developments that are not completed? … Why have we heard of so many cases where you have pulled the funding out of development projects which have not been completed…
Corfield: However, the reality is equally, unfortunately, that in some of these development cases putting in further money will not realise any extra value either for the customer or for the bank and unfortunately the reality of what happened in the GFC was that values fell very significantly, especially in regional development centres.
Sign here or else
Williams: I was very concerned recently when a solicitor representing Bankwest drafted up an affidavit sent to a client to sign, being a person in business, and the person in business said, ‘I’m not signing this affidavit. It’s not true.’ Shouldn’t affidavits be drawn up with the client working with the solicitors and so they put it together, not on one drafted up by someone representing your bank and saying, ‘Sign here’ …
De Luca: If you have got something you want to provide to us we are happy to look into it.
Williams: I have already forwarded it to your bank but I have never had a response.
Penalty interest rates, tax deductibility of manufactured debt, transparency
Williams:But I see it as very unfair when someone is in trouble and you take their interest from seven per cent to 14 per cent or to 18 per cent default interest or whatever. That to me is ‘when you’re down we’ll sink the boot in’. It is un-Australian. … How does this help to get people out of trouble when you double or treble the interest rate on it?
De Luca:Obviously, clients in default have contractual obligations and when clients are then put into a team that is more intensive in terms of working with them there is an additional cost to that and also in terms of default there is increasing capital attributed to servicing and supporting that customer. So that is the logic for the default rates.
Williams:[A customer is] in trouble and they cannot pay you. That amount of your loss is then tax deductible afterwards. Is that correct?
Corfield:We work with each customer individually to understand what the business can actually bear.
Williams:You did not answer the question. … By having huge default interest rates, surely that builds that amount to a situation where in some cases or in many cases of these bad loans that leads you to a greater tax deduction.
De Luca:Firstly it is in our interests actually to make profits, not to actually have losses. …. As Ian alluded to, we negotiate and work with the customers on a case-by-case basis on what the right default rate is.
Williams:You have not answered the question. [Is the exploding debt tax deductible?]
Mr Corfield:Technically, yes.
Bushby:There is one thing I am curious about. If a revaluation triggered the loan-to-valuation breach, would that then qualify under most of your general terms for the imposition of penalty interest? …
De Luca:Part of the contractual arrangements, if there was a covenant in place, certainly provides us the opportunity to do that.
Bushby:We have had suggestions during the course of the inquiry that the penalty interest things were hidden, hard to find and that even experienced solicitors and mortgage advisers … had failed to identify the severity of the default interest. Is it hidden?
De Luca:Default interest is standard within the terms and conditions of the contracts. …
Corfield:I would say our default interest levels are spelt out clearly within our contracts.
The triggering of default, receivership, ‘consultation’
Bushby: In any instances, bearing in mind that we have received submissions that suggest this is the case, have you appointed receivers with your customers … purely on the basis that there is a change in the loan-to-valuation ratio …?
De Luca: It would not typically be solely for the LVR.
Bushby: But you cannot rule out that that might have happened in some cases – solely?
Corfield: It might well have done, because that would be a covenant within the contracts. What happened in this area during the financial crisis is that the market value of some of these businesses fell by between 50 and 80 per cent. In those cases, especially when the market is continuing to fall, it is very often in the best interests of the customer and the bank to act early rather than late. …
Bushby: And presumably you can make that without consultation with the customer to see whether they, too, think it is within their best interest?
Corfield: No, in all instances we would have discussed those with the customer.…
Bushby: But some of those witnesses suggest that the receivers have turned up without any warning …
De Luca (responding to a specific case mentioned by Bushby): All I would say is that there are two sides to every story, and it is absolutely not in our interest and I would be amazed if we sent the receivers in two days before a refinance was going to be happening.
Sale under value, and not to highest offer
Bushby: In those sorts of circumstances [pre-sale contracts ignored by the receiver] it seems it would have been in the interests of Bankwest and the customers to have proceeded with completion of the contracts rather than selling out for something one-third or one-quarter of the value of the pre-sold contracts. Are you aware of circumstances like that having happened?
De Luca: What you have alluded to is a small part of the information. … As Ian and I have alluded to, it is not in our interest to sell an asset for a lower value and take a loss.
Bushby: We have also heard evidence through the course of this inquiry that some of the customers are aware of potential buyers, or alternatively have actually found them, for all or part of their businesses and have approached the receivers you have appointed and have either been ignored or had those offers rejected. Then, subsequently, the property on which the security was held was sold at a much lower level.
Corfield: Yes. Obviously over the course of the financial crisis valuations fell very dramatically. …
Bushby: It does not fit in with what you were saying about the GFC lowering prices, because in the midst of it they had somebody who was willing to pay more. …
Corfield: During the financial crisis we saw a lot of potential sales of assets, but ultimately those sales fell through because buyers were as spooked by the financial crisis as sellers were.
We lent voraciously during the good times, but it turned out to be a poor decision on the part of the borrower.
Willams: You were talking about your percentage of customers with default loans and so on. It appears that a lot of your customers who were sold up, who fell over or whatever were developers on the east coast. Would that be a fair thing to say?
De Luca: A large number.
Corfield: Yes, I think it is fair to say that Bankwest grew quite rapidly in the properties sector and in a couple of other sectors immediately prior to the GFC which were then areas that got hit the hardest. …
Williams: Hotels and developers on the east coast. Was it foolish marketing prior to this – the efforts of Bankwest to go out and expand the book in those two sectors on the east coast?
Corfield: I think what we would say is that at the time that felt like a rational and a good place to be growing the book. Obviously no-one at that point was predicting the financial crisis, certainly not the depth that occurred. That was the strategy that Bankwest had pursued at that point in time. …
Williams: Do you think Bankwest panicked on the development of the east coast in the action that it took?
Corfield: I do not think so. The reality is that some of those markets dropped between 50 and 80 per cent and they have not recovered.
From the evidence, the CBA’s and BankWest’s answers to the Senators’ questions constitute a comprehensive pack of lies.
Cohen dissembles about both the purchase arrangements and also the government’s involvement in the CBA takeover. But the truth of these processes requires the subpoena of documents from both the CBA, the Treasurer’s office and government agencies. Meanwhile, the takedown of the BankWest customers stands independently and nakedly as a criminal act, and the denial of its character by bank officials risible. The Committee Chair notes at the beginning of each hearing:
“It is also a contempt to give false or misleading evidence to a committee.”
Bank officials present must have misheard that statement.
“At the end of the day, these situations are resolved on the facts.”
Let us sincerely hope so. Cohen’s claim that the wholly owned BankWest conceived and enacted the takedown on its own, contrary even to his own convoluted evidence, is preposterous. Guy Goldrick notes:
“I am absolutely staggered that CBA can say that they had no influence over Bankwest, its board, its executives or its day-to-day running once they bought Bankwest. Are they that deluded that they can expect this inquiry and hundreds of Bankwest’s commercial customers will believe this is what happened? In fact CBA’s day-to-day involvement went a lot further. They anointed men like Ross Griffiths, CBA’s chief credit and risk officer, better known in the industry as their hit man, and Jonathan Clements to clean up the Bankwest commercial loan book.”
Goldrick refers to an article on Griffiths published in (note the timing) early December 2008,where Griffiths is described as the front man attempting to clean up the CBA’s genuinely errant boom-time lending. We read there:
‘When CBA boss Ralph Norris finds hundred-million-dollar problems, he sends in the burly Griffiths. … What is certain, though, is that Griffiths is a bloke who could, almost single-handed, dramatically amplify the recession we are about to have.’
As for Cohen’s claim that the victims’ varied stories on a common theme are to be attributed to a ‘well orchestrated campaign’ (a conspiracy of lies by incompetent failures?) by Geoff Shannon’s Unhappy Banking — well, with Goldrick, I am absolutely staggered; are they really that deluded?
Consider the default interest rates issue in particular. Such rates, typically at usurious levels in the high teens, are a vehicle to drain the customer’s remaining equity and to facilitate a speedy default or foreclosure on all customer assets. That the bank may apply a penalty rate is an integral component of a customer contract, but the level to be applied is not. The procedure is a racket; it has been going on for decades, it is practised by all banks, and it is generally ignored by the regulatory agencies and the courts.
On 8 September 2011, I wrote a letter to Senator Williams referring to the deadly grip that banks have over the family farmer, and the banks’ rorting of the NSW Farm Debt Mediation system, ‘legitimating’ penalty interest rates and entrenching foreclosure prospects. I noted:
“In short, the current penalty interest rate regime is de facto legalised theft. … I feel that it is an issue that could be taken up with the prospect of support from a sufficient number of one’s Parliamentary colleagues, and that such pursuit would find ready support amongst the borrowing public. More, the pursuit of this specific issue, an arena where the banks would be vulnerable and offering the prospects of some success in reform, would lead naturally to opening up the broader system of bank malpractice to scrutiny.”
The current Inquiry, the attendant submissions and testimony, provides a natural fulcrum to bring the reform of the penalty interest rate racket to a head.
The evidence points to the CBA takedown of BankWest customers as a monstrous fraud.
It would have been planned — and the numbers around the table would have been more than a handful. One could reasonably infer that the group would have included then CBA CEO Ralph Norris, Ian Narev (put in charge of the BankWest takeover), David Cohen (chief counsel) and Jon Sutton (installed as BankWest CEO). It is noteworthy that when BankWest victims first clamoured for an inquiry in late 2011, the CBA signalled that Sutton would be brought back into the CBA. Then when the Inquiry was announced in March 2012, there was a change of plans and Sutton scooted off to the Bank of Queensland.
Just a few other details.
The CBA/BW lobbied to stop the Banking Inquiry from going ahead. The CBA/BW also registered the websites unhappybanking.com and unhappybanking.com.au — but, happily, it missed unhappybanking.net.au.
Said De Luca:
“Obviously, our branding out there is Happy Banking and therefore we would like to own everything we can around Happy Banking.”
CBA/BW had operatives taking photographs of people present at the demonstration in a Sydney park on Sunday 26 August, centred on BankWest’s foreclosure of the iconic Sandringham Hotel in Sydney’s Inner West. The CBA is clearly the Bank that CAN.
On my way home from the Inquiry hearings at NSW Parliament House, I passed the CBA building at 5 Martin Place. Its foundation stone is dated 1913. A magnificent edifice, it was built thus to signify a significant institution in the service of the public interest.
100 years later, the idea of ‘the public interest’ is forgotten.
These days, the Commonwealth Bank is run by a bunch of spivs.
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