With the conclusion of the "war of words" between banks and victims, Dr Evan Jones goes behind the scenes, courtesy of the victims, to expose "bank bastardry", "regulators asleep on the job", "doctored evidence", "bank harassment", "fraudulent foreclosures", "sadistic criminality and "systemic bank corruption".

(and the Turnbull Governments says it has a "tough cop on the beat" with no need for a Royal Commission ...)

Part 1: A postscript on the Impairment of Customer Loans Inquiry

The current Parliamentary Joint Committee inquiry, ‘the Impairment of Customer Loans’, arranged an extraordinary extra hearing on 4 April. The presentations deserve exposure and their implications elaborated.

Diversionary preliminaries

First up was a representative of the Australian Taxation Office. The Committee members wanted to know the ATO’s view on bank practices relating to customer impairment/defaults that had an impact on bank reported profits and claimed tax deductions.

For example, did the ATO look behind banks’ claimed deductions for bad debt write-offs? What did the ATO think of the legitimacy of penalty interest rates (a contributory factor to impairments), etc.

Essentially, the ATO did not look under the carpet. There was the citation of due procedures, accounting standards, supposed but inactive audits, but there were no lights on upstairs. Embarrassing. Another regulator asleep on the job.

Next up were three representatives of the Royal Institution of Chartered Surveyors, to be questioned on matters of the “science” of customer asset valuations. From which followed a good deal of pomp — standards, training, ethics, blah. Well how come, queried the Committee, we have widespread complaints from victims as to manipulated valuations, valuations that trigger default and foreclosure. Nothing to do with us, said the RICS mob.

By now, and throughout the day, there was much guffawing, gasps of incredulity, etc., from victims in the audience. The Chair, Senator Fawcett, perennially had to call the mob to order. If he had attempted to remove anyone there would have been a riot.

Peculiarly, the back of the hearing room witnessed a group of youngsters with their laptops out. Some lecturer (in “Communications”) had evidently dictated that the class needed some exposure to “the real world”. Unfortunately, they evidently got bored to tears, and all cleared out by morning tea. They should have turned up later to hear the bank witnesses.

Then came ANZ bank representatives with a rather inconsequential presentation. They claimed that their treatment of ex-Landmark customers subsequent to the ANZ’s takeover in December 2009 was all above board — which is rubbish. The general tenor of the testimony (rather inconsistently) was that, behind the scenes, ANZ is working to sort out troubled relationships with some ex-Landmark clients. Not that ANZ cares about banking ethics, but it’s clear that the bank is worried about its reputation. It’s more than can be said about the CBA.

The CBA as pure as the driven snow

The CBA’s reappearance was the main act of the day. After all, the CBA’s default of myriad Bankwest customers was the motivation for the establishment of this inquiry.

The CBA’s David Cohen (General Counsel), as per usual, was making no concessions whatsoever.

There are broadly three questions to consider in relation to Commonwealth Bank and Bankwest. First, is there any evidence of a conspiracy around the purchase of Bankwest and did Commonwealth Bank have an incentive to impair loans to reduce the purchase price or gain some other benefit? The unequivocal answer to that is: no. Commonwealth Bank could not reduce the purchase price payable to HBOS by impairing customer loans, nor did it attempt to do so. …

Secondly, putting aside the conspiracy theory and the lack of any motivation to do so, did Bankwest take action against customers who were meeting the obligations on their loans? Clearly, the answer again is: no. …

Thirdly, excepting that there was no conspiracy and the customers were failing to meet obligations to Bankwest, did Bankwest act too quickly or did it fail to adequately work with customers? Again, the answer is: no.

Cohen is always ice cool, straight out of central casting. By contrast, the body language of Cohen’s colleague Robert de Luca, Bankwest’s CEO, indicated anything but a man confident of the bank’s hard line.

Coincidentally, that very morning The Australian reported that the CBA had sacked an IT manager for blowing the whistle on a corrupt software procurement tender. When Committee members brought up the issue, Cohen brushed it aside. CBA spokespeople act as if successive scams (Commonwealth Financial Planning, CommInsure, etc.) just didn’t happen. CBA senior management resides in a parallel universe.  

The Committee has been snowed under by back and forth testimony and behind-the-scenes documentation of victims claiming “the CBA/Bankwest did this, and we suffered that”, the CBA responding that “the borrowers were all properly treated and deserved their fate”, and the victims counter-responding that the CBA is lying through its corporate teeth.

The CBA forwarded a document to the Committee on 1 December 2015 with its claims on four victims (including Rory O’Brien and Trevor Eriksson), before appearing before the Committee on 2 December. The CBA (and Bankwest) had already appeared before the Senate Economics Committee inquiry into ‘the Post-GFC banking sector’ on 9 August 2012. These representatives had misled that Committee then, but the worthy Senators had ignored the issues in its useless report.

A brief look at key victim combatants is in order regarding Cohen’s three-part declamation above.

Rory O’Brien

Rory O’Brien is one of a number of high profile CBA victims. Cohen’s claims regarding O’Brien’s Airlie Beach resort project’s reputed failure were made during Cohen’s testimony on 2 December, which I covered here, and in the CBA’s 1 December letter.

Cohen claims that O’Brien’s project had been re-jigged to a grander scale mid-stream and by late 2008 at the time of the CBA Bankwest takeover was incomplete with serious defects, that the claims regarding would-be purchaser deposits were exaggerated, that the project had run up unpaid creditors during early 2009, and so on.

In a February 2016 letter of response, O’Brien demolishes all of the bank’s claims. In particular:

'… the project was completed on 28th November 2008 on time and budget with the Certificate of Practical Completion issued on that day. This is a strict contractual and statutory confirmation of completion issued by the independent Building Superintendent, our Project Manager, (Incoll) and NOT the “builder” as falsely claimed by Mr Cohen.' 

The accumulating indebtedness of the project in early 2009 was a direct result of the CBA’s overturning of Bankwest’s promise to turn over the residual debt in January and of the bank’s refusal to give the go-ahead for the finalisation of pre-sales that would have reaped approximately $100 million and dramatically reduced the debt.

On this latter obstruction in particular, O’Brien’s then lawyer, Malleson’s Michael Allen, noted in a 2012 affidavit:

'BankWest’s failure to respond after the meeting [in mid-March 2009] and its refusal to co-operate with my client to effect one of the registration options to preserve the sale contracts baffled me. I had never before experienced a financier apparently abandoning sale contracts that represented such a significant part of its security in a project. This curious conduct continued up to the appointment of the receiver the following month.'

The receiver, Korda Mentha, also declined to effect realisation of any of this $100 million worth of pre sales, offloading the project for a pittance.

In the CBA’s letter of 1 December, it also includes a hand-written File Note of a meeting on 29 April 2014 between Cohen and O’Brien and the latter’s lawyer, supposedly to effect a final settlement to avoid a forthcoming return to court. Cohen sends this Note as decisive primary evidence for the bank’s stance.

On the contrary, O’Brien (in his letter to the Committee) claims:

'I say these notes have been "engineered" after the fact to distort the picture.… these are CBA's version of events and not mine and are a mixture of true statements, half-truths, lies, quotes out of context and crucial omissions to suit CBA’s story. … One of the most pivotal aspects of the entire meeting is completely missing from the notes …'

The “pivotal aspect” relates to O’Brien’s source of funding for previous litigation and why a possible victory for the CBA in court would mean that the bank could not recover costs awarded against a now penniless opponent.

Ah, doctored evidence. The banks have pulling that stunt in the courts forever, with the bench declining to acknowledge the practice and its adverse implications for the delivery of justice.

The CBA attempted to get concessions from BankWest’s seller HBOS for O’Brien’s supposedly impaired facility as at 19 December 2008 (the purchase finalisation date), but the independent arbitrator Ernst & Young demurred. Ernst & Young concluded that the project was on stream for a successful conclusion (not least with the finalisation of the pre-sales, as above), concluding that:

'As such it is our opinion that no specific provision was required for this loan at 19 December 2008' [and other loans?].

Ernst & Young concludes that the CBA’s provisioning of O’Brien’s debt to the tune of $49 million was unwarranted. O’Brien himself infers that CBA’s impairment of O’Brien’s facilities was motivated precisely so that the bank could claim a clawback from HBOS. The project could go to hell for the sake of the purchase price.

The heading of Ernst & Young’s O’Brien determination reads as follows:

'Disputes between HBOSA's revised provision at 19 December 2008 (finalised at 9 June 2009) and CBA greater than $5 million.'

If this is not an indication of a clawback provision in the CBA’s purchase of Bankwest, what is it?

The CBA’s 1 December letter confirms the above:

'Ernst & Young’s finding that no provision was necessary and no adjustment to the purchase price was required in relation to this loan bound Commonwealth Bank to the outcome that there would be no reduction in the purchase price of Bankwest for Mr O’Brien’s loan.'

Even in the bank’s doctored 29 April Note, Cohen is credited as saying:

'ROB loan was only loan on price adjustment list.' [totally implausible]

O’Brien also claims in his letter to the Committee that:

'In the lift on the way down to Mr Cohen's office on a lower floor he said to me he was glad to get this settled as my loan was one of the few large loans they had clawed back.'

Trevor Eriksson

Trevor Eriksson was a major builder in the Orange NSW area. He had a productive relationship with his lenders Bankwest before the CBA takeover. In mid 2009,

Eriksson started to have trouble with CBA-purchased Bankwest. The first sign was when Bankwest failed to make available funds to pay ongoing building works, so Eriksson, as a stopgap measure, used his own working capital of $400,000 (intended for interest payments) to pay the builders. At the time, the CBA was retrenching Bankwest staff in his area. The funds were not forthcoming from Bankwest, and the expenditure never credited to Eriksson.

Representative of all bank bastardry is the attempt to control the evidence admissible during any litigation. In a directions hearing before Hammerschlag J (no friend of bank victims) on 8 July 2013, the CBA’s barrister, Philip Dowdy (recently appointed to the Federal Circuit Court, god help us)

Hammerschlag: The next affidavit which is read is that of Trevor James Eriksson sworn 30 April 2013. Any objections to that? 

Dowdy: Yes, a lot of objections, I am afraid. This is a very discursive affidavit. I object to paragraph 7. … Bad in form, mere assertion. 

Hammerschlag: Why are they bad in form? As I understand it the complaint … is very simple. He said the bank put him in default unconscionably because at the time they did it they said they would advance him 400,000 which would have assuaged the default. They didn't advance him the 400,000 and relied on the default. It is a very simple proposition, so what is bad in form about that? I can see why you don't like it but that is his complaint. He says the bank dudded him.

Dowdy: He does not put that in the pleading that he is putting up.

Hammerschlag: That may be … but I propose to admit this material, Mr Dowdy. … I will admit paragraph 7 on the basis it reflects his subjective understanding of the position. … he has got a really simple complaint against a bank. Going to the merits of the original dispute, he says they promised him $400,000 and then there was this new broom sweeping clean, came back, didn't maintain what they promised him, and then stuck him into default, stuck in receivers and then the house of cards all fell down after that.

Exactly. In mid-2010, a new Bankwest representative was foisted on Eriksson. This grim reaper harbinger of the new regime informed Eriksson that a new valuation was under the loan quantum (only recent independent valuations had been well above), and that his loan was in default (without nominating the reasons).

The bank defaulted Eriksson’s companies and installed receivers in July 2010. Following Eriksson’s resistance, a bank-controlled mediation took place in December, at which Eriksson had little choice but to accept onerous conditions (under a "deed of release") which it soon proved impossible to fulfil.

Eriksson then faced his own version of the large-scale CBA-imposed descent through a summary judgement issued against him in early 2012 (the familiar McDougall J at it again), after a July 2011 hearing. There then followed appropriation of all account funds and credit card access, sale of assets massively under value and bankruptcy in April 2013. The bank refused to cooperate with Eriksson in facilitating Eriksson’s arrangement of re-financing from alternative lenders.

The bank’s predation against Eriksson was then joined by the predation of the receivers (Grant Thornton) and the bankruptcy trustee (Ferrier Hodgson). The receiver gouged huge sums from Eriksson’s company; the bankruptcy trustee (as the bank’s flunkey) withdrew the cross-claim before Hammerschlag, rendering the victim powerless to continue litigation.

Added to the farce was the claim that Gadens had been appointed to do an independent assessment of Eriksson’s case which supposedly concluded that Eriksson had no chance. Gadens happens to be a major law firm acting for the CBA against BankWest and other victims.

When Eriksson sought redress against his treatment, the CBA went after his family. This sadistic dimension of CBA criminality was also manifest in the bank’s pursuit of Geoff Shannon’s parents — Shannon being “guilty” of creating adverse publicity for the CBA through his “Unhappy Banking” network.

The CBA attempted to counter Eriksson’s 13 November hearing testimony in its 1 December letter to the Committee. As with the bank’s claims regarding O’Brien, the bank emphasised minutiae of the victim’s failure to comply with indebtedness. But this timing refers to the period after the bank had engaged in constructive default. (Similarly, court hearings emphasise comparable post-default minutiae whereas the fraudulence of the default is off the agenda, and Eriksson is held to have given consent to his own destruction.)

As for the crucial default itself, the bank’s account struggles for credibility:

'While Clergate [Eriksson’s company] did not return the 9 April 2009 letter of variation [a lie; it did], even if it did a number of major conditions precedent to the variations approval were not met, including Clergate failing to provide formal Development Application approval, a construction certificate, a building contract or lease. Clergate had not met its obligations in order to receive renewed funding.'

These claims are farcical. The fertile imaginations of the bank’s script writers were evidently not in gear when this scenario was concocted. The lessees were arranged, and the building could not have been commenced without DA approval and construction certificate. When Eriksson tried to obtain confirmation from the certifier, the bank harassed the certifier.

During the CBA’s 2 December testimony, under pressure from Committee members, CBA Counsel Cohen claimed:

'We have always said that if there are circumstances where somebody genuinely believes, and can present us with evidence, firstly, we are prepared to look at it very closely; and, secondly — and we have actually said this to our CEO and to one of the Bankwest customers who was very much bringing these issues to the fore — we are open to people bringing us those circumstances.'

Eriksson took Cohen at his word. He notes in his February 2016 letter refuting the CBA’s claims:

'On the 4 December 2015, two days after Mr Cohen’s offer made on 2 December 2015, I wrote to the Bank requesting to take up Mr Cohen’s offer and for him to meet with me to review my case. On the 8 December 2015 the Bank replied; “…your understanding of David Cohen’s evidence before the Committee on 2 December, 2015 is not accurate.” My request for a review of my case was declined.'

Cohen, for the bank, thus misrepresented a promise to the Committee (“We have always said …“). How often do the Honourable Committee members and the inquiry system itself have to be abused by bank spokespersons before they take umbrage and cease to tolerate it?

Associate Professor Evan Jones is a retired political economist. He has been writing on bank malpractice against small business and the family farmer for over a decade.

Part 2 to follow ...

For more indepth analysis of the latest in the series of parliamentary inquiries into system bank corruption, read Dr Evan Jones' 6-part series:

Part 1

Part 2

Part 3

Part 4 

Part 5

Part 6

Bank bastardry and sadistic criminality laid bare in loans scandal