Banking royal commission: CBA’s loan default theories at Bankwest dismissed

THE banking royal commission will not investigate “ulterior motive” theories that the Commonwealth Bank forced some customers to default on their loans to boost its bottom line.

The Commonwealth Bank did not have an “ulterior motive” in foreclosing on Bankwest customer loans, the banking royal commission has heard. Picture: Hollie Adams.

THE banking royal commission will not probe “ulterior motive theories” that arose following the Commonwealth Bank’s takeover of regional lender Bankwest.

Opening the third round of the commission hearings in Melbourne this morning, senior counsel assisting the commission Michael Hodge, QC, said none of the alternative theories around the Bankwest takeover process held water.

MCCRANN: TIME FOR REFORM, NOT SHACKLING OF BANKS

BILL SHORTEN CALLS FOR BANK VICTIM COMPENSATION

“There are various ulterior motive theories and they are not consistent with each other,” Mr Hodge said.

“None of these ... warrant further consideration.”

Senior council assisting the commission Michael Hodge, QC.

The third round a commission hearings is probing small business lending.

The CBA bought Perth-based Bankwest, then owned by British bank Halifax Bank of Scotland, at the depths of the global financial crisis in 2008.

It was later accused of effectively forcing more than 1000 commercial Bankwest loans, for family-run and medium-sized businesses, into default.

The commission heard today that one of the main alternative theories was the CBA could lower the price it paid for Bankwest by foreclosing on the loans under “clawback” provisions in the terms of the takeover deal.

While the sale process did include a process where the final price would increase or decrease depending on the final state of the business, the commission heard the CBA paid more for the business than it initially offered.

CBA bought Bankwest at the depths of the global financial crisis. Picture: Jono Searle.

Most loan disputes also arose after the buyout price was agreed, the commission heard.

The commission heard another Bankwest theory was that the CBA impaired the loans to improve its tier-one capital ratio — essentially a measure of the strength of its books.

This theory fundamentally misinterpreted the link between loan impairments and tier-one capital ratios, the commission heard.

“Impairing and provisioning a loan does not improve a bank’s tier-one capital ratio,” Mr Hodge said.

“None of the analysis we have just gone through is consistent with the CBA seeking to deliberately default borrowers.”

Mr Hodge said these theories had already been proven to be false and were a distraction to more core issues in the relationship and power between small businesses and banks.

“If we do not ask the right questions then we cannot hope to assist you arrive at the right answers,” he said.