Westpac chief admits blind pensioner’s tale ‘confronting’

A Westpac executive has admitted he found it ‘confronting’ to hear the bank allowed a blind pensioner to act as a guarantor.

A Westpac executive has admitted to the banking royal commission that he found it “confronting” to hear the bank allowed a legally blind disability pensioner with a long list of serious health problems to act as a guarantor for her daughter’s small business loan.

A clearly emotionally moved Alastair Welsh, Westpac’s general manager of commercial banking, told the commission it was “really disappointing” to hear the details of the case, in which the pensioner, Carolyn Flanagan, said she thought she was guaranteeing a loan of $50,000 — one-third of the actual value.

However, he maintained that “technically, there’s not a problem” with Westpac accepting a guarantee from Ms Flanagan.

This was despite an internal Westpac policy warning bankers to “exercise extreme caution where parents are offering to guarantee the business borrowings of their children”.

Details of Ms Flanagan’s case were aired as commission hearings resumed in public after a three-week break following a dramatic session that sparked the early exit of AMP chief executive Craig Meller and a board spill that took in the resignation of chairwoman Catherine Brenner.

In the coming two weeks, the inquiry will switch focus to the often troubled relationship between small businesses and the banks from which they borrow, examining whether the way some financial minnows are treated is unfair, unconscionable or falls below community expectations.

Yesterday, the commission also heard about an overhaul of the Australian Banking Association code of conduct, during which former ASIC executive Philip Khoury encouraged the banks to make the code fairer and simpler for small businesses to understand. The banks and the corporate regulator remain in ­dispute over the code.

Separately, counsel assisting the commission, Michael Hodge, QC, dismissed theories that the Commonwealth Bank had ­“ulterior motives” in pushing borrowers into default after its takeover of Bankwest during the global financial crisis in 2008.

To illustrate bank practices around small business lending, the commission heard evidence from Ms Flanagan, who acted as a guarantor for a small business loan to her daughter and her daughter’s partner, who could not be named in the proceedings.

Ms Flanagan’s ailments have included glaucoma, cancer, depression, osteoporosis, divertic­ulitis, pancreatitis, chronic obstructive airway disease and a fractured pelvis.

She remembered visiting a Westpac branch twice with her daughter in 2010 but had a poor memory of what she was told about the documents she signed.

Moments before the hearing, Westpac produced a document showing Ms Flanagan had received independent legal advice before signing — although commissioner Kenneth Hayne noted the document did not specify the contents of the advice.

Ms Flanagan did not remember seeing a lawyer and said in any event she would have signed “anything” for her daughter.

Facing homelessness after the business failed and the guarantee was called on, Ms Flanagan sought help from Legal Aid NSW senior solicitor Dana Beiglari, who was able to negotiate a deal under which she can remain as a tenant in her home until she dies.

Ms Beiglari said in “nearly all” similar cases, her clients did not understand the detail of the amount or type of loan they were signing up to when they agreed to guarantee their children’s small business loans.

Westpac’s Mr Welsh agreed parents could be taken advantage of and that bankers should be aware of signs of vulnerability.