Banking royal commission live: CBA’s David Cohen in Hayne’s spotlight

In a highly anticipated appearance, CBA’s David Cohen detailed the disasters in Bankwest’s loan book.

the Commonwealth Bank of Australia's David Cohen.

That’s it for today’s evidence at the banking royal commission’s third round of hearings. This afternoon, CBA chief risk officer David Cohen was under the microscope, describing a spike in Bankwest’s troubled assets.

Earlier today, the commission heard how pub baron Michael Doherty got into a “tight spot” with the bank and ultimately became bankrupt.

Michael Doherty

Receivers appointed by CBA over his unfinished hotel took “bizarre” action, including ripping out $180,000 of chandeliers and trashing most of a $450,000 cafe fit-out. The action was taken under Project Magellan, CBA’s scheme to call in loans in attempt to clean up a book laden with commercial property inherited from Bankwest.

4.22pm: Bankwest’s inadequate provisioning

An internal email showed a summary of reviews for Bankwest.

One slide showed the extent of existing reviews and proposal for Project Magellan.

Some 61.2pc of the Bankwest business would have been reviewed by the time Magellan was completed, the document showed.

There were different percentages in different documents, but more than half the Bankwest business book was reviewed in different reviews, Mr Cohen agreed.

The reviews identified Bankwest’s inadequate provisioning, he agreed.

The Project Magellan reviewed the “good book” to check the health of loans that had not been classified as troublesome or impaired, and whether they were classified accurately and whether there was a shortfall in collective provisioning.

So the bank checked whether the files were rated properly, and whether the amount of collective provision should be changed — because of a prudential obligation to provision accurately and in order to include the loan impairment expense accurately in financial statements.

For example, it was decided to review all hotels and pubs, and anything with security value over $5m where the loan was more than two years old. Independent reviewers were brought in ie not the regular business relationship managers who had day to day dealings with the borrower.

Commissioner Kenneth Hayne.

4.19pm: No comprehensive Bankwest watchlist

CBA chief risk officer David Cohen has faced questions about worries within CBA about the Bankwest business loan portfolio from senior counsel assisting Michael Hodge QC.

This concern — about whether collective provisioning was being adequately undertaken — led to Project Magellan.

There were a number of reviews undertaken.

Another was Project Columbus — to improve operating procedures of the credit asset management team that looked after troublesome and impaired loans.

An internal review showed a summary of watchlists — lists of loans where the credit health had started to deteriorate but it had not yet become troublesome or impaired.

Banks would want to have a watchlist to try to stop loans from becoming troublesome or impaired.

But Bankwest didn’t have a comprehensive watchlist process in place when it was bought by CBA and that wasn’t introduced until April and May 2009, Mr Cohen agreed.

From July 2009 to Feb 2010 some $1.4 billion of loans were listed as troublesome or impaired — sent to the credit and asset management unit. But other borrowers were moved out of CAM into other business units either because they were rehabilitated loans, or the borrower repaid or refinanced, or “enforcing as a last resort”, Mr Cohen said.

of those $1.4bn of loans transferred into CAM some $1.2bn had been on the watchlist.

An internal email from the Bankwest managing director to CBA’s Simon Blair, group executive responsible for the international financial services business unit of CBA, who was responsible or Bankwest was displayed.

This described the property finance unit that made loans of more than $5m.

Mr Sutton said the credit review of the property finance unit made for very poor reading and there was no real credit review process in place and asked for the team to be strengthened.

Did CBA say Bankwest had an “aggressive” strategy in east coast lending?

Yes, in relation to commercial property — Australia wide and exacerbated on the east coast.

3.56pm: ‘Limited provisioning skills’ at Bankwest: Cohen

The commission looked at a Bankwest business portfolio review in 2009 by then Bankwest chief risk officer Peter Deans, as CBA chief risk officer David Cohen answered questions by senior counsel assisting Michael Hodge QC.

How would risks be identified?

Mr Cohen said risk management staff would be organised into specialist teams eg for credit risk, market risk, liquidity risk, operational risk, compliance risk. They would work closely with business teams and advise on risks or how to mitigate risks.

The risk function could implement a concentration cap as a way to deal with risk. This could include industry sector concentration or geographic concentration.

An internal memo showed some specific sector reviews eg of landbanking, hotels and clubs. They were areas Bankwest had been active in lending to.

The industry concentration cap for property services was 50pc and 15pc for construction and the bank was considering revising down the concentration caps.

Counsel Assisting Michael Hodge.

Mr Cohen agreed that the high concentration of the total exposure in particular industries, and the effect of the GFC, meant the review made sense.

Mr Cohen added that relative lack of diversification was another reason.

3.52pm: Bankwest’s commercial property exposure agenda

An executive risk committee memo from 11 September 2009 showed Bankwest proposed to reduce its commercial property exposure from $14.8bn to $14.25bn by 31 December 2009 and cap exposure at that level through to December 2010.

Mr Cohen agreed that was a prudent response.

By 2010 there were still concerns about the Bankwest business loan book, Mr Cohen agreed.

During 2009 the provisions for the Bankwest business loan book had been increasing. Provisions are what the bank recorded as the loss it expected to make, not whether the loans had actually been defaulted.

One issue was Bankwest’s collective provisioning models and processes, Mr Cohen agreed.

A limited number of people in Bankwest had sufficient provisioning skills, Mr Cohen agreed.

There was a concern about whether the Bankwest business loan portfolio was being credit rated and managed in accordance with CBA standards, Mr Cohen agreed.

Bankwest used credit ratings that were “perhaps not as diligently applied” as the CBA applied credit ratings, while the business relationship managers’ management of loans “was not as active”, Mr Cohen said.

3.39pm: CBA’s David Cohen takes the stand

Commonwealth Bank chief risk officer David Cohen has taken the stand in a highly anticipated appearance to answer questions about Project Magellan to answer questions from senior counsel assisting Michael Hodge QC.

In 2009 he was CBA general counsel but he never worked for Bankwest.

He advised on the Bankwest acquisition and was involved in the expert determination on the price adjustment mechanism, then he was involved in the surrender of Bankwest’s banking licence.

CBA’s David Cohen

He was not involved in the reviews of Bankwest’s portfolio.

Internal bank documents showed commercial property made up 50.3pc of Bankwest’s total committed exposure for non-retail assets.

There was also an increase in troublesome and impaired assets. Impaired assets are where the bank does not expect to recover the full proceeds but a troublesome asset is one where there is concern about the loan’s health.

The internal document showed a “notable increase” in troublesome assets over the past nine months.

Internal documents showed a three times increase from gross debt for impaired assets, while the value of specific provisions against increased 13 times.

Specific provisions were for a specific loan but general provisions were due to economic circumstances.

So the acquisition took the group concentration in commercial property from 8.5pc to 9.9pc against a limit of 10pc, an internal review document showed.

The bank wanted a limit on the concentration of its lending in any industry to be prudent in case that industry went into gradual decline, Mr Cohen said.

The next internal document was prepared by then Bankwest managing director Mr Sutton and said the quality of the Bankwest business asset book was poorer than original expectations and the bank was derisking the portfolio, repositioning the business bank to reduce the high exposure to commercial property.

This was consistent with Mr Cohen’s understanding of Bankwest’s business bank.

3.33pm: Worse off than before?

The commission has resumed after a break to allow former pub owner Brendan Stanford to compose himself after senior counsel assisting Michael Hodge asked about the effect on his brother of the forced sale of their hotel and he appeared to choke back tears.

What was the effect on your brother?

“From the time this was instigated I saw him struggle and even after it all happened I saw him depressed for a few years. That’s why I’m here today because he couldn’t come in,” Mr Stanford said.

What about the offers that were made, and the potential effect on his brother’s partner who offered to invest in the business?

“She wouldn’t have made that commitment unless she thought it was a viable option,” Mr Stanford said.

Could he have ended up worse off?

“That was a possibility,” Mr Stanford said.

3.13pm: ‘Had the rug pulled from under us’

Focus has turned to Bankwest customer and hotelier Brendan Stanford’s attempts to sell his country pub, under questions from senior counsel assisting the commission Michael Hodge QC.

Mr Stanford tried to sell the hotel in the lead-up to June 2014 but brokers said distressed hotel assets were going to come to market anyway so it was hard to justify their valuation.

Despite a paper valuation of $1.2m he was told the hotel was only worth in the $900,000s.

“You think that you are going OK and then this is thrown into your business and you are trying to deal,” Mr Stanford said.

“You’re little battlers in a small country pub and you can’t turn things that quickly … so to see all that work that you’ve done over an extended period just to have a rug pulled out from under you, I think it affected him more in that sense than me.”

By June 2014 they had a marketing campaign, figures done, a contract done, ready to sell — but no buyer.

They offered to pay $200,000 to the bank by the following Friday and a further $100,000 30 days later — the money would come from his brother’s partner who felt strongly enough the business was viable to put up the money and reduce the principal. They asked to refinance the rest over 15 years.

Bankwest responded saying it was unable to accept the proposal and had already provided numerous concessions and noted the hoteliers had agreed to sell the hotel by June 2014.

The brothers did not sell the hotel by this time. They made a further offer to the bank.

They explained they had secured outside money of $400,000 from his brother’s partner.

The response read that the bank “will not engage in a further banking relationship and simply require to be repaid … should you however wish to repay $400,000 before July 4, 2014 the bank may consider a period of eight weeks to allow you to seek refinance with the full residual debt being cleared at the end of that period”.

PPB turned up to the hotel again and closed it after being appointed receivers. PPB sold the hotel but Mr Stanford didn’t know the price until well afterwards — he thinks it was $525,000. The bank did not pursue them for the balance of the debt.

What was the effect on your brother of the selling of the hotel, counsel assisting Mr Hodge wondered.

Mr Stanford became emotional and did not answer.

Commissioner Kenneth Hayne offered him a short break.

Commissioner Kenneth Hayne.

3.02pm: ‘It seemed like we were easy targets’

Bankwest asked for PPB Advisory to review customer Brendan Stanford’s country hotel, the commission has heard, during cross-examination by senior counsel assisting Michael Hodge QC.

His brother was suspicious about why PPB was at the hotel.

He received a letter from Bankwest on the investigative accountant’s report on the hotel. Bankwest was concerned about a change in the business’s financial condition.

He did not receive a copy of the report but was asked to acknowledge whether there had been a change in the position of the business.

He did not believe he responded within a week to explain why he disagreed with a report he wasn’t seen.

He was asked to pay the investigative accountant’s fee of $9900. He believes it was applied to his overdraft.

He sought legal advice.

He complained to FOS.

He met with Bankwest. He was trying to understand what the investigative report showed.

“The fact that we didn’t receive any information around it just cast a shadow over the whole transparency of what was going on,” Mr Stanford said.

The bank highlighted the downturn in trade but Mr Stanford did not know how else that information was available to them and added that all businesses go through peaks and troughs.

He said the business was still making its loan repayments.

He remembered thinking Bankwest would sell them up.

“It was fairly common in the industry that there was a number of receivership sales going on and Bankwest formed part of that,” Mr Stanford said.

“And we had some in the vicinity of us as well that was going through those situations … it just seemed like that we were easy targets in that relation in the fact that we’re high asset businesses but we’re low cash flow.” For example, poker machines provide a good capital value, he said.

He remembered that the bank had tried to push the accountants for a value on the property but the country hotel market was soft. The bank said the hotel was only worth $250,000 but he pressed for how they could come up with that figure.

“It was a high anxiety type thing,” Mr Stanford said. “It wasn’t a good feeling to be on someone else’s turf and be told that your business is worth $250,000 and we are not going to show you why.”

He thought the relationship with the bank was not recoverable.

He wanted to show that financial 2011 was only a glitch in the five years they had been there, and asked the accountant to get the books up to date, as they needed that information available in case they were going to sell anyway. They did all the steps to bring a hotel to market.

In 2012 he stepped away from being involved in the hotel as he was being treated for leukaemia.

His complaint to FOS lapsed.

He sought to reopen the complaint.

2.40pm: Hit by smoking ban

Former pub owner Brendan Stanford has outlined his loans with Bankwest, facing questions from senior counsel assisting Michael Hodge QC.

In 2009 Bankwest asked for a troubled hotel he owned to be revalued, consistent with the loan’s requirements of a valuation every three years.

The valuation at October 30, 2009 was $1.55m.

Around 2010 the business was affected by the GFC’s flow-on effects and the changes to smoking in pubs.

He kept up his loan repayments but did fall behind on payments to the ATO so set up a payment plan.

The business set up an overdraft facility, of $20,000 and they had earlier asked to go interest only but were told it wasn’t an option.

The overdraft became overdrawn.

He had a discussion with Bankwest’s Garry Goldsmith in 2010 about signing a new loan document as their facility was no longer available and needed to change.

The change meant that their reporting would go to quarterly instead of annually.

The business missed the first quarterly reporting deadline and received a letter from the bank with a notification of breach on November 30 2010.

The letter said a breach fee of $250 would be waived.

But his brother wasn’t comfortable after the meeting with Mr Goldsmith.

The bank sent another breach letter but Mr Stanford did not remember receiving it.

One issue was the business had failed to maintain its interest cover ratio which requires earnings to be more than double interest. The other breach was around a debt servicing ratio which Mr Stanford could not explain.

He did not remember if they were still making loan repayments by April 2011 although they were still paying the ATO.

They talked about selling the hotel as he thought it was time for a break.

But his brother wanted to stay.

2.17pm: Hospitality gone wrong

Hospitality contractor Brendan Stanford has taken the stand at the royal commission, to answer questions from senior counsel assisting the commission Michael Hodge QC about his dealings with Bankwest.

Meanwhile, CBA chief risk officer David Cohen is listening in the public gallery — he is scheduled to give evidence next.

In 2005 Mr Stanford and his brother ran a pub in NSW’s Hunter Valley. He and his wife owned the pub and his brother was general manager.

They sold it and he eventually bought another pub, The Coronation Hotel in Portland in 2006.

They paid $1.6m and applied for a Bankwest loan of $1.2m which was the maximum LVR the bank offered. The funded the difference from savings.

Bankwest gave them a loan. Robertson and Robertson did a valuation and valued it at $1.6m.

They provided the hotel as security for the loan. The company — called Let It Rain Pty Ltd — provided security as well. They incorporated the company as it was a structure that worked with hotels where you could own the freehold and a new entity could come in as a lessee.

For the first 15 or 16 months he and his brother operated the pub. Then his brother ran the pub and he went to work in another job

At the start the pub performed in line with the figures provided and in the first 12 months turnover was up about 10pc on the initial figures.

Towards the end of 2010 performance dipped off.

His brother was running the business and Mr Stanford “helped out whenever … whatever was required, I would just pitch in”.

His brother was responsible for the accounts but Mr Stanford would look at how the business was going.

12.59pm: Too many roadblocks to baron’s new loan

The commission has looked at the final days of pub baron Michael Doherty’s serviced apartment development project, with CBA’s chief credit officer Peter Clark answering questions from counsel assisting Albert Dinelli.

The project was close to completion and a certificate of occupancy was issued the next month.

The pub baron had been told he was in breach of the loan to value ratio. Mr Clark did not dispute that but was not sure if the bank sent a formal letter about the breach.

Commissioner Kenneth Hayne interjected to clarify that the loan has expired and the valuation was sought as the bank works out whether to extend the loan or offer a new one.

So what was the relevant basis of valuation?

Commissioner Kenneth Hayne

There are two factors, Mr Clark said, the actual valuation and the loan to security margin. Plus the bank would look at forecast cash flows.

“It’s not as though we are looking for the valuation to provide us with some trigger in a LVR covenant breach … from the bank’s perspective it really wants the most accurate valuation,” Mr Clark said.

Mr Clark said he did not know whether the valuation should have been in one line (which would value the property as a hotel only) or mixed use, but he said the discussion seemed “a little moot”.

The LVR was one reason why the bank did not renew the loan but other reasons were concern about creditors, time it would take to get it done, information from the Doherty group, the credit deterioration, Mr Clark said.

CBA's Peter Clark at the commission

He agreed the bank knew Mr Doherty was in financial difficulty. Mr Doherty owed money to the ATO and was waiting on money from Mantra.

But for the bank — if they had signed the agreement — it meant they could only sell to one buyer and that was something the bank was “very loath to agree to”.

Mr Clark denied that Project Magellan — CBA’s review of Bankwest loans — resulted in any change in risk in relation to this loan.

The project went into receivership in January and opened in May. The receivers sought more funding and their overdraft got up to almost $4m. The hotel operated for about a year before it was sold.

The property sold in September 2013, Hadley’s for $8.325m and the Inner Collins project for $24.9m. So Bankwest lost about $38m on the loan, Mr Clark agreed.

Commissioner Kenneth Hayne had a general question about how banks decide whether to refinance loans.

One issue was whether the bank would get an acceptable return, Mr Clark said. Also, the bank would consider credit deterioration, and the relationship with the client, he said.

Commonwealth Bank is under Commissioner Hayne’s spotlight.

12.38pm: Why did Bankwest change its valuation?

Focus has returned to Bankwest’s loans to Tasmanian pub baron Michael Doherty, with CBA’s chief credit officer Peter Clark answering questions from counsel assisting Albert Dinelli.

In 2008 the loan approval proceeded on the basis of the multi-use valuation, he agreed.

He did not know why the bank changed its position and later wanted to use an “in one line” valuation methodology.

JLL was asked to value the project as is, and as if complete, and at the end, and in one line, correspondence shown to the commission said.

But the response was that the valuation would not take into account Mantra’s appointment to operate the project.

JLL’s valuation for all of Hadleys hotel and the Inner Collins development project was $55m subject to the existing management agreement terms, the valuation report showed.

Around this time Mr Doherty was frequently telling the bank he was concerned that the valuation would be in one line, Mr Clark agreed.

Mr Doherty had said the true potential of the property would only be realised on a mixed use development valuation approach, Mr Clark agreed.

But banks would be very conscious of pre sales for penthouse apartments and would normally need 100pc of those presales to be contracted with deposits before lending against them — not just a valuation on its own, Mr Clark said.

Commissioner Kenneth Hayne.

12.06pm: Was agreed deal even put to customer?

CBA’s chief credit officer Peter Clark has further detailed Bankwest’s lending practices, under questioning from counsel assisting Albert Dinelli.

He explained a change of loan term to hotel owner Stephen Weller.

Mr Clark said the loan had been made in 2005 as two years of interest only with 13 years of repayments and four or five years later there had been no principal payments. So a “bullet structure” had been proposed to accommodate that. But Mr Clark was not sure if that offer was put to Mr Weller.

Another internal bank document suggests the term was approved down from five years to two years.

Mr Clark said generally longer tenure comes with longer risk because more things can go wrong.

But from a borrower’s point of view they might prefer a longer term loan?

Mr Clark: “There are some conflicting views between borrowers and bankers, yes.”

He said the bank offered a longer term to Mr Weller but the pricing was unattractive to him.

In 2010 did the bank want to carefully manage its loan book?

Mr Clark: “I think it’s common knowledge within the bank and banking generally that post-GFC there were concerns about property books of all banks and Bankwest was heavily invested in property so I think there were concerns about the exposure generally.”

The internal review showed the client did not belong on a “weak list” as the business decline was in line with the industry amid the post-GFC downturn, and the customer had a “first class’ servicing” record and provided information in a timely manner.

By 2012 the file was transferred to credit and asset management.

The customer had made all his payments but his earnings were getting very close about the level of interest payments, Mr Clark said, “so I think there would be a concern about the ongoing ability to meet his payments” given a decline in trade that had already happened.

Around this time there was a valuation of the hotel.

The loan to value ratio was very high and that was one of the reasons the bank didn’t want to renew the loan, Mr Clark said. He agreed the valuation was part of the decision process.

What about the deed of forbearance? Is it common for steps like that to be taken six or seven months after a file had gone into the CAM unit?

It’s probably not uncommon, Mr Clark said. In that case the bank didn’t want to extend the loan or take enforcement action, he said.

It “doesn’t seem very fair” that the deed was provided to Mr Weller two days before the loan expired, he said.

11.36: Bank covenants were ‘guidelines’

Peter Clark, CBA’s chief credit officer, has taken the stand to answer questions from counsel assisting Albert Dinelli about Bankwest borrowers who have given evidence to the commission.

He started with Stephen Weller who bought the Nambucca Hotel in regional NSW, taking a loan to buy the pub and then increasing it to buy out his business partner.

The loan was to expire 15 years from the initial drawdown date ie the buyout of the business partner.

The length of the loan was not that unusual for Bankwest but “perhaps a little more unusual” in Mr Clark’s experience.

The loan took security over the hotel, liquor and gaming licences — but not Mr Weller’s house.

There are non-monetary covenants eg the interest cover ratio that measures the cash flow surplus above the borrower’s interest obligations. This is part of “prudent management” by the bank to compare the performance of the business to forecasts.

The debt service ratio compares cash flow available for debt service with the interest and payments that are due.

If a borrower breaches one of these ratios that is a breach of the loan but the bank might treat them with different importance, Mr Clark said.

Failure to meet a repayment is a “fundamental breach” but the financial covenants are “seen as guidelines” and it’s “very rare in my experience for a bank to actually call a default and demand repayment as a result of a breach of one of these ratios alone”.

Mr Weller breached the non monetary covenants a number of times.

But did he miss repayments?

Mr Clark said the borrower did miss repayments. There were $226,000 of arrears when receivers were appointed — but these were after the loan expired, Mr Clark agreed.

Immediately before the loan’s expiry there were no monetary defaults, he agreed.

The loan didn’t have a loan to value ratio covenant. Mr Clark was “surprised” by this as such a covenant would be “sensible’ and “good banking practice” now.

In 2010 there was a negotiation about the loan.

Around this time Project Magellan was happening and the Nambucca Hotel loan was reviewed as part of the project which had looked at pubs and hotels generally.

An internal bank document recommended that the hotel appeared to generate stable earnings and the security value was holding. It was rated “green” as pass.

So at that time the hotel did not need to be transferred to the credit and asset management team.

The Magellan review thought the hotel valuation was “probably a bit high” and should be $4.3m instead, Mr Clark said.

10.51am: How the pub baron went bankrupt

Pub baron Michael O’Doherty could not get any other financing and the ATO was pressing for its money.

“We contacted the bank again and said look we are in this catch, what are we going to do, we can’t refinance it. You won’t allow the hotel to open to retrieve some debt and pay the ATO off. If that’s the case we will be trading insolvently,” Mr Doherty said.

He suggested putting the project into voluntary administration that would help with the ATO issue. He spoke to someone from PPB. “he said I don’t want to pull the pin out, the bank is going to appoint a receiver so you are just wasting your money appointing us,” Mr Doherty said.

Receivers were appointed that day in February 2012.

“In one regards it was a fire sale because we knew that a receiver was breathing down our neck. We had no options. We were pushed into a very tight corner,” Mr Doherty said.

But then it got even more “bizarre”, he said.

Some $180,000 of chandeliers were pulled out and the receivers refurbished the cafes even though the hotel had not traded yet.

The hotel opened in May.

He wasn’t in a position to buy it back.

Intercompany loans were called in. He said he was still in a position to hopefully refinance and they offered a six week extension on the basis he sign a document saying he had done no wrong which he was “very stressed” by. He contacted senators John Williams and Bob Brown but was told he was being “blackmailed”.

He went bankrupt.

Michael Doherty at the royal commission. Picture: AAP.

10.33am: ‘A lot of concerns’ over Bankwest valuation

In 2011 Bankwest told Pub baron Michael Doherty he needed another valuation.

“We were getting very short of cash through to all the additional expenses that the bank was piling on us and additional raised interest,” Mr Doherty said.

He was told the valuation had to be done as in one line without taking into account the retail, apartments and car park components — this was an instruction from the bank.

So apartments would have to be valued as a motel room — a max of $250,000 when they were selling from $750,000 to $900,000 each.

“We raised concerns a lot of the time,” Mr Doherty said. “How can you not take into account the actual trading performance when you are doing a valuation?”

Troy Craig was under instructions to do a valuation in one line but Mr Doherty was not allowed to see it.

What was he told about the loan value ratio?

“We were told there by Michael Hogan, he said that Bankwest no longer had an appetite for this sort of development especially in Tasmania. He said we would have to refinance … the bank no longer wanted us a s a client he said the exposure is too big and it’s not where we’re heading,” and he added that the group had exceeded its loan to value ratio.

The loan was due to expire. His group had paid for the hedging of the funds because he thought the second tranche would be renegotiated on the completion of the building.

He did everything he could to refinance the loan elsewhere.

The project had now taken longer, he had paid out extra professional fees and a higher interest bill and accountants fees.

“We were running short of money,” Mr Doherty said. “But we could still see the project coming to an end.”

Mantra’s Pepper’s brand was in discussions to manage the Inner Collins project and would pay $3m and settle the developer’s $1.2m debt to the ATO.

Was Inner Collins able to be occupied?

He had a certificate of occupancy but the wrong washing machines had been delivered and the TVs still had to be hung on the wall.

Mantra wouldn’t open the serviced apartment tower until they had a tripartite signed agreement — also signed by the bank.

“We are coming up to Christmas which is the peak trading time for Tasmania. We were desperate to get it open and get some revenue stream coming into it,” Mr Doherty said.

He had multiple discussions with Bankwest about them signing the tripartite agreement.

Michael Hogan said in a letter that if the developer left they had to pay a $980,000 break fee.

10.06am: ‘Those professional fees were crippling’

Pub baron Michael Doherty has returned to the stand to answer questions from counsel assisting Albert Dinelli about his borrowings with Bankwest.

He had borrowed to buy a hotel and develop a serviced apartment project, he said yesterday.

There was some confusion about their accounts — the bank appointed an investigating accountant who pointed out the company had a $3m profit even when the bank had worried about a $5m loss. His accountants had been asked for “enormous, copious amounts” of reporting and he ran up another $20,000 in chartered accountant’s fees.

He had to pay an extra $200,000 in investigating accountant’s fees at this time.

He was introduced to Jonathan Clements the head of CAMs — the credit and asset management unit.

Michael Doherty. AAP/Tracey Nearmy.

“Martin Waller used the phrase once, again he got back onto this supposed loss of $5m and said it had to be handed to the bank’s intensive care department,” Mr Doherty said.

“All the time it was drawing our cash flow down and down … the continual requests for accountancy outside the facility agreement. It was just those professional fees were crippling us,” Mr Doherty said.

He had two valuations. He was “exceedingly worried” by the commentary from the bank that was “misunderstanding his account”.

9.40am: CBA in the spotlight

The banking royal commission will today focus on CBA’s treatment of former Bankwest customers, in the wake of revelations about the property lending binge embarked on by Bankwest’s previous owner HBOS.

Property lending had soared to 50.3 per cent of Bankwest’s commercial loan book by 2009 and CBA pushed to cut its exposure to 45 per cent.

Pub baron Michael Doherty will return to the stand to finish evidence about his borrowings from Bankwest this morning.

CBA chief risk officer David Cohen is scheduled to give evidence this afternoon but with a busy day ahead he may not appear until tomorrow.

Other witnesses set to appear include Peter Clark, CBA chief credit officer; Brendan Stanford, expected to be a customer; and Sinead Taylor, Bankwest EGM business banking