The thesis that Commonwealth Bank engineered a handsome "clawback" from Lloyds/HBOS in connection with its rushed, GFC-linked takeover of Bankwest late in 2008 may be so well publicised that, in the eyes of casual observers and even Australian banking industry insiders, it has become accepted as fact.
This clawback thesis lies at the heart of oft-repeated complaints that CBA coordinated unwarranted "constructive defaults" of Bankwest business borrowers in order to extract maximum value from the clawback.
A thorough understanding of the pros and cons of these conjectures is of keen interest to a select few - mainly former customers in the midst of legal action supported by an agglomeration of banking outsiders and stirrers determined to make CBA's actions one centrepiece of the deconstruction of the oligopoly power of Australia's major banks.
The present inquiry by the Parliamentary Joint Committee on Corporations and Financial Services into the impairment of loans has been running since June last year. The rationale for setting this committee to work was a political interest in pandering to persistent borrower grizzles dissatisfied with the scrutiny of similar material by a Senate committee in 2012 on "The post-GFC banking sector."
Most of our reading of submissions and transcripts has done little to dispel one prejudice - that the great majority of disgruntled borrowers allow their emotion and financial distress to inform the narratives and analysis (to the extent there is any) produced to the Joint Committee.
Another bias, this publication's familiarity with the authority of the powerful commercial institutions on which we report daily, may also be hard to put aside.
To be blunt, most if not all of the "analytical" material presented to the inquiry by the bank's critics leaves a lot to be desired. As we illustrate later, theories range from the improbable to the incoherent and the flat out bizarre.
In any event, Banking Day finds itself parting company with the vituperative interpretations and with the near abuse of Commonwealth Bank and key senior executives that are a staple of the written submissions and eight days of hearings since early October.
The words "lied", "deceived" and their derivatives pepper many submissions and transcripts. We will do our best to allow these accusations to settle on the institutional reputation of the bank rather than the single member of the CBA management committee most often singled out for abuse at committee hearings.
For an antidote, our
introductory news report in today's trio of articles - drawn from the most recent evidence of David Cohen, CBA's group general counsel - will have to do.
The enthusiasm to frame CBA as a perverted force in Australian society extends to the media, with the editors of the website Independent Australia on Monday whacking the bank in a headline as purveyors of
"bank bastardry and sadistic criminality."The author of that piece of commentary, retired Sydney University academic Evan Jones, argued that "CBA spokespeople act as if successive scams (Commonwealth Financial Planning, CommInsure, etc.) just didn't happen.
"CBA senior management resides in a parallel universe," Jones wrote.
"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'."
CBA, if anything, is a patient stakeholder in the inquiry process, with numerous responses and elaborations sitting on the committee website, most of which present data to demolish the theories of its antagonists.
An alternative perspective is that Commonwealth Bank, its management and board are clarifying, with evidence, a routine account of risk management in business, albeit one framed by a process that lead to heartbreak for many and a search for revenge by some.
Being as objective as we can, the material supplied by Commonwealth Bank to the Joint Committee dispels most of the lopsided theories that inspire the bank's critics.
One bank timeline, dated 8 October 2015, repeats old but essential material that kicks the infamous "clawback" fantasy floating off toward irrelevance.
There is indeed what might be termed one clawback payment, of A$26 million. This, CBA explained, was paid on 9 July 2009 by Commonwealth Bank to the vendor, HBOS.
An "independent expert determination" informed this refund, one relevant to the calculation of the "final settlement price" for Bankwest of $2.126 million. This arcane piece of work, assigned to Ernst & Young, is of intense interest to some critics but simply contradicts their case.
In any event the bulk of the ramp up by CBA of assertive (ok, aggressive) collections and recovery work on Bankwest's thorniest business loans was subsequent to the resolution of these final payments in mid 2009.
Far too much criticism is made of CBA's re-grading of credits to reflect its own more stringent credit criteria and too little of Bankwest's loose lending policies in the closing years of the boom up to 2008.
The bank's critics aim to lead the Joint Committee to revolt against Commonwealth Bank's retelling of all facets of this affair. The aim of this band of agitators is to lead the committee to endorse a questionable assembly of material to place the bank and its leaders in the dock, metaphorically if not in fact.
A smattering of analysis that counters CBA's version of events sits on the committee's website. One important instance is the work of Trevor Hall, a Sydney solicitor assisting some clients to sue the bank in a case unlikely to reach trial any time soon.
The Hall Partners research draws on public domain analysis of bank funding models, bank capital and the regulatory landscape, as well as limited disclosures on actual loan management practices to support their favoured theory, the one that has CBA maximising losses on loans to Bankwest borrowers and in turn minimising the bank's ultimate purchase price via a clawback payment by HBOS to CBA.
To date, any such clawback payment is not yet clearly in evidence.
Instead, convoluted models centred on the debt funding arrangements rather than the equity side of the deal leads Hall to a conclusion that seems inventive if not weird.
"CBA achieved a deduction of and clawed back or avoided payment potentially as high as the $2.1 billion initial purchase price," Hall wrote in a crescendo to his paper.
In other words, should Hall be on the money, CBA in the end bought Bankwest for nothing.
A wider sample of the Hall Partners' submission comprises the
third article in this series today on the topic.
-- First published, Thursday, 28 April 2016
-- Republished, Sunday, 11 December 2016