ANZ saddled with soured rural loans in Landmark buy

ANZ rushed into $2.4bn takeover of lender Landmark in a bid to be the nation’s biggest agribusiness player.

Benjamin Steinberg leaves the banking royal commission hearings in Brisbane on Monday. Picture: AAP

ANZ rushed into its $2.4 billion takeover of rural financier Landmark with little due diligence as the bank attempted to become the biggest player in the nation’s agribusiness market.

However, the acquisition in the aftermath of the global financial crisis soon wrong-footed the bank with an explosion of souring loans, the financial services royal commission heard yesterday.

In a lengthy and protracted hearing, royal commissioner Kenneth Hayne was visibly frustrated by the testimony provided by ANZ head of commercial lending services Ben Steinberg, who was unable to provide responses or simple answers to numerous lines of questioning at the Brisbane Magistrates Court.

The hearing was part of a week-long focus by the royal commission into rural and agribusiness lending, with Commonwealth Bank, Rabobank and National Australia Bank expected to face the spotlight in coming days.

ANZ’s Mr Steinberg was unable to say whether the bank conducted stress tests of the loans on the books of its Landmark acquisition in 2009. About a third of the loans later became impaired or were considered high-risk of default soon after ANZ bought the division from the then listed wheat exporter AWB.

By 2013, $722 million worth of Landmark loans were impaired or considered high risk — a total of 1050 loans — and the bank ended up forcing 162 farmers off their land.

ANZ’s Mr Steinberg said loan quality data for the 2011 and 2012 years was “not available” to the bank.

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Minutes of an ANZ board meeting from August 2015, presented by counsel assisting Rowena Orr to the royal commission — which was not included in Mr Steinberg’s witness statement to the inquiry — showed the ANZ board had discussed a paper titled “Farming Segments Support Strategy”.

In that meeting, which was attended by now-chief executive Shayne Elliott and chairman David Gonski, the bank considered that there was “a lesson to be learned from the Landmark acquisition in connection with assumptions in delinquencies and expected losses that were not stress-tested”.

Mr Steinberg acknowledged to the royal commission that the number of loans falling into default was worse than the bank ­expected.

“At the time when we did the due diligence, which resulted in us calculating what the provision should be, that we hadn’t done that work certainly correctly,” he said.

However, Mr Steinberg was unable to tell the royal commission what assumptions were made about loan performance in connection with the Landmark acquisition, and was “not aware” of any stress-testing carried out by the bank. An independent report by McGrath Nicol also warned ANZ of the poor underlying asset quality of the Landmark portfolio and raised concerns bankers were covering up for the credit quality of their borrowers in their pursuit of lucrative commissions.

However, as Mr Steinberg was not on the mergers and acquisition team taking over Landmark, he was not in the meetings where stress-testing was discussed, if it did take place. The royal commission’s questions to Mr Steinberg in preparation for the hearing also did not specifically address the stress-testing, although the meeting minutes were included in a dossier of documents released yesterday.

Mr Steinberg admitted that he had made no inquiries with the members present at the board meeting despite being provided with the meeting minutes in preparation for the royal commission. “I think the best that I can say is that I’m not aware of there being any stress-testing,” he said.

Mr Steinberg said ANZ had no structures in place at the time of the takeover to ensure it could deliver on its commitment that its bankers would talk to customers to guarantee a smooth takeover.

This mirrors the experience of other major lenders buying assets which quickly turned out to be more problematic than first thought. Earlier this week Commonwealth Bank said it would be carving off a number of scandal-plagued businesses in a demerger expected to create a new ASX-listed company worth up to $10 billion. Other banks, including NAB, have outlined plans to unwind their wealth business.

Although ANZ generally denied either breaching the banking code of practice or community expectations when it evicted farmers, Mr Steinberg admitted ANZ did not act fairly, reasonably or ethically in its treatment of farmer Charlie Phillott, whom the bank tried to force from his land.

In another instance, Mr Steinberg defended the bank’s treatment of the Harleys, who owned a sheep farm in Western Australia. Facing financial pressure after five years of losses, the Harleys tried to sell assets to reduce debt. Less than a month after Mr Harley suffered a heart attack, ANZ told the family they were in default. They were given six months to repay their loan, and then 24 hours to vacate their property.