Banking royal commission: Westpac deposit demand ‘too complex’

A Westpac chief didn’t understand legal documents used to demand customers put $100,000 into a term deposit.

Westpac's Alastair Welsh leaves the banking royal commission. Pic: Aaron Francis

Westpac’s head of commercial banking, Alastair Welsh, has admitted he himself doesn’t understand legal documents the bank relied upon to “quarantine” a $100,000 term deposit it demanded from customers the bank mistreated over a small business loan.

The bank also failed to make “full and fair” disclosure of what it knew about the case when customer Bradley Wallis and his wife complained to the Financial Ombudsman Service, Mr Welsh told the financial services royal commission this morning.

Mr Welsh admitted Westpac subsidiary Bank of Melbourne did the wrong thing by putting a “hard hold” on the term deposit, which it demanded from Mr Wallis and his wife when they sought to discharge one of their two mortgages with the bank, secured against a residential property at Port Macquarie in NSW.

At the time, bank officials were concerned about the loan-to-valuation ratio of the other loan the couple held with the bank, which they took out to buy a bed and breakfast at Byabarra, inland from Port Macquarie.

Mr Welsh has admitted to the royal commission that the $516,000 loan was wrongly classified as a residential loan, when it should have been a commercial loan.

If it had been classified as a commercial loan the bank’s policies meant it should have lent Mr Wallis less money.

The bank became alarmed about the situation in the middle of last year when Mr Wallis sought revaluations of both loans in the hope that he could draw down on additional equity to buy a house on the Gold Coast.

When Mr Wallis wanted to sell the Port Macquarie property, the bank demanded he put aside $100,000 in a term deposit to cover the difference.

In an internal bank document shown to the commission, a lending specialist emailed: “We’re not formally taking the term deposit for security it is just there for comfort pending the valuation of the property coming back so we know where we stand from a security perspective which should be in the next few days … really sorry to be escalating this one when all the delays were before it got to you but the issues weren’t the customer’s fault either and we just want to do what we can to make the best of a bad situation”.

Mr Welsh agreed the bank’s withholding of the $100,000 was to try to solve a problem caused by the bank’s own conduct and not by any fault of Mr Wallis.

Counsel assisting the royal commission, Rowena Orr, QC, put it to Mr Welsh that he could not find any evidence anyone at the bank considered whether it had the legal right to quarantine the $100,000.

“It didn’t happen, did it Mr Welsh?”

“I don’t see any evidence of it,” he replied.

Ms Orr took Mr Wallis to an internal document from October last year in which a credit manager approved the term deposit as “additional collateral” until the Byabarra loan was reduced.

She asked: “Do we see any consideration whatsoever in this document of whether there is a legal entitlement to take this action?”

“No I don’t,” he said.

Ms Orr: “Do you accept from that that it didn’t happen — there is no reference to it in any of the documents?”

Welsh: “I accept there is no evidence, but I don’t know what happened.”

Asked about the legal clauses entitling Westpac to take the term deposit as security, Mr Welsh said he was not a lawyer.

“I’m told that we can rely on them, I can’t point to the clauses,” he said.

“It’s too complex.”

Mr Welsh agreed the business banker wanted to get the deal done to avoid the client taking a rival offer from NAB and pressed — despite the information from the valuer for this property to be characterised as residential.

The business banker raised the rival offer from NAB “while we try to dot our Is and cross our Ts”, adding: “Wouldn’t it be wise to take our competitors out of the market so we can proceed with getting everything we need from the client prior to settlement rather than leave things open … what can we do quickly before we miss out on a good deal?”

Mr Welsh agreed the business banker was very keen to get the deal done and he and his boss stood to gain financially if the loan was approved through their bonus structure.

He said he had seen no evidence of disciplinary proceedings within the bank against anyone involved in the debacle. “I haven’t asked for it, though,” he said.

Ms Orr asked: “Do you think it would have been useful to ask?”

“I do now,” Mr Welsh replied.