The Sydney Morning Herald
June 4, 2015
Adele Ferguson Business columnist
On Thursday morning, a new parliamentary inquiry was quietly unveiled with a set of bombshell terms that will send shivers down the collective spines of the banks, property valuers and liquidators.
The inquiry, to be headed by Senator David Fawcett, has put together a wide-ranging terms of reference that will target loan defaults, and whether the banks deliberately engineered some of them to sell people up – people who had never missed an interest payment.
It is an allegation that has long dogged the Commonwealth Bank of Australia when it took over Bankwest in 2008 during the global financial crisis. In a 2012 senate inquiry into post GFC banking, more than 150 submissions were received from Bankwest customers that told stories of a bank that “engineered” defaults.
Indeed, earlier this year in a late-night speech to parliament, Liberal senator Alan Eggleston let loose on CBA and Bankwest and called for a public inquiry into its behaviour. He alleged CBA of deliberately defaulting some of Bankwest’s business customers for its own commercial benefit.
“If it is true that the CBA got a price reduction exactly equal to the gross value of impaired loans in 2008, then this means CBA paid zero cents in the dollar for those impaired loans,” Senator Eggleston said.
CBA has denied any wrongdoing. However, these allegations will undoubtedly resurface in this inquiry, forcing senior bank executives to explain themselves and certain documents that will be submitted to parliament.
Other banks, including ANZ, National Australia Bank, Westpac and others won’t escape the inquiry’s scrutiny. ANZ received attention over its treatment of farming families tossed off their stations by the big banks. In some cases it is alleged that the prices the properties sold for were low ball.
It is why the terms of reference include a clause that says evidence will be taken on “the effect of the forced sale of property in depressed market conditions and drought, and comparisons between valuations and sale price”.
Veteran Liberal MP Philip Ruddock, one of the members of the parliamentary inquiry, said a key focus of the inquiry would be constructive default. “At times it appears some financial institutions take the view you can engineer or create a default and use it then to sell people up when in fact they have been repaying their interest and when they still have adequate security.”
Ruddock said the inquiry would look into how the banks might use “constructive defaults” to impair loans. This could include getting the loan revalued to change the loan to value ratio (LVR), the role of property valuers in this process and insolvency practitioners who are appointed to a defaulting business.
It is something Nationals senator John Williams has also been concerned about for years. Senator Williams said he was “extremely concerned when companies and businesses go under due to extreme pressure from the banks and financiers when they have not missed an interest payment”.
He said he was interested in section 420(a) of the Corporations Act, which refers to receivers selling up assets seeking the highest price. Senator Williams said there were too many cases where assets are sold on the cheap. “Does this part of the act need to be changed? We will look at this,” he said.
This will embroil the liquidation in the inquiry, an industry that has been accused through the years of being riddled with conflicts of interest, charging excessive fees, lacking transparency, prolonging liquidations to collect the fees and hiring property and other valuers to give them a valuation that is well below market value. The asset is then sold to another client.
Senator Williams has been leading the push for change in the insolvency industry and spearheaded a senate inquiry in 2010. Some profound recommendations were made but the then Rudd government and now the Abbott government sat on them.
This parliamentary inquiry – and the evidence that will be heard – will hopefully push the Abbott government to instigate some proper reforms – not a few tweaks, as is being proposed.
With so many problems and criticisms, it is not surprising liquidators have been the focus of at least seven inquiries in the past 25 years.
But in terms of inquiries and investigations, the banks are in a league of their own. If it isn’t financial planning scandals, it has been a long-running investigation by the regulator into possible rigging of bank bill swap rates.
In the process CBA, National Australia Bank and ANZ have had their reputations damaged by their treatment of customers of their financial planning divisions. It has prompted the regulator to study culture to try to find a way to rein in some of the problems that are rocking confidence in the system.
The latest inquiry, which will take submissions until July 24 and report next March, is another turn of the screw.