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MARGIN LOANS – A DOUBLE WHAMMY BY THE CBA AND MACQUARIE!

MARGIN LOANS – A DOUBLE WHAMMY BY THE CBA AND MACQUARIE!

Extending housing loans by the CBA and the BOQ to Storm’s clients was bad enough because the majority of these loans were imprudent (meaning that they should never have been approved under the banks’ banking codes in the first place), but when the CBA and the Macquarie Bank also extended margin loans to those same clients, this was sheer madness. These margin loans incidentally were for many millions of dollars.

To make matters worse, whatever chance those Banks’ Storm customers had of salvaging some of their money was effectively blocked by the CBA and the Macquarie Bank when they sat on these margin loans and left their Storm customers stranded without any hope of recovery.

Here’s an article by Drew Cratchley of THE SYDNEY MORNING HERALD dated 4th September 2009 that outlines the CBA’s response to the Storm Financial collapse and its attempts to shift the blame.

“CBA blames Storm for margin call delays.

Commonwealth Bank of Australia (CBA) has blamed Storm Financial for not passing on margin calls to its investors despite admitting the bank did not contact the customers itself.

Appearing before an inquiry into the collapse of the Townsville-based financial planner, CBA also admitted information it supplied Storm about the financial health of its customers was not completely reliable.

Six senior Commonwealth Bank staff appeared before the federal parliamentary Inquiry into Financial Products and Services in Sydney on Friday, led by group general counsel David Cohen and group executive of business and private banking Ian Narev.

Chief executive Ralph Norris was unable to attend, but will front the inquiry later this month when it sits in Canberra.

Former Storm boss Emmanuel Cassimatis raised questions before the inquiry in Brisbane on Thursday why CBA did not make margin calls to Storm investors late last year as the stock market plummeted.

Some Storm customers were encouraged to take out mortgages against their homes to secure margin loans to invest in indexed share funds.

The market's fall in November and December pushed the ratio of the loan to the equity investment's value higher, triggering a "margin call" for additional funds or assets from the lender.

Mr Cohen told the inquiry the bank stopped delivering margin calls directly to customers by mail sometime between 2003 and 2008, in preference to relying on financial advisers to make the call.

"The reason was due to mail delays, quite often that letter proved to be useless because the dealer had already notified the customer," Mr Cohen said.

"What we found was that the effectiveness of the dealer contacting the customer was high, sending a letter didn't add anything to the process."

Senator Brett Mason described that practice as "extraordinary".

"The late transmission of that advice cost people their homes and their livelihood, that's what we now know after two weeks of hearings," Senator Mason told the inquiry.

Mr Narev said the bank followed accepted industry standards, and blamed Storm for delays passing on margin calls.

"We have said in our submission that we relied upon Storm to do the right thing and they did not do the right thing," Mr Narev said.

Earlier this week the inquiry also heard allegations from former Storm staff that CBA provided false information on the financial state of Storm customers as the global financial crisis hit.

A review of CBA's systems since Storm's collapse has shown they were "substantially reliable," Mr Narev said.

"Substantially as you've identified doesn't equal completely," he told the inquiry.

"So we can't at this point say they were completely reliable, although we don't know they weren't, and if that contributed to any loss that any individual had then it is something that will be dealt with in the remediation scheme."

CBA has established a resolution process for Storm customers that have a margin loan or home loan with the bank.

"The thing that weighs most heavily on us in the organisation is the plight of people.

"I understand that and that has been at the front of our focus," Mr Narev said.

The inquiry will next sit in Canberra on September 16.”

We all know now that these rogue bankers out there are about as sincere as rattlesnakes. When they get into trouble, they trundle out the same old platitudes. Mr. Narev and his predecessor, Mr. Ralph Norris, have a track record for making excuses when the CBA has been caught misbehaving. Since the Storm Financial scandal, that bank has been involved in three more major scandals but the same record still gets played over and over again.

What I’m going to do in this article is tell it as it really is and not as the CBA would have everyone believe. I will start by quoting from an epistle (shortened version) I sent to the Chairman of the Australian Securities & Investment Commission, Mr Greg Medcraft, on 14th July 2011. I’m doing this because I want the reader to understand that those within ASIC were fully aware of what the CBA, the BOQ and the Macquarie Bank had done when extending loans because I, for one, told them time after time, but ASIC continued to do nothing about it. Sound familiar?

Dear Sir,

Re: The Commonwealth Bank of Australia – (“An affront to morality!”)

If you refer to the many submissions that were made to the ‘Parliamentary Joint Committee on Corporations and Financial Services” you will find a litany of stories that relate directly to this particular Bank’s moral decay. Take for instance the case of a                   y       (submission)     ) who had the misfortune to bank with the CBA over some years and is now, like many others, destitute.

“Submission to the Parliamentary Joint Committee on Corporations and Financial Services - Issues associated with recent financial product and services provider collapses. Submitted by:                  Y on July 2009:

My submission relates specifically to Storm Financial and Colonial Geared Investments.

BACKGROUND:

For 29 years, I had a satisfying and supportive relationship with Storm Financial, (also known under previous company names), initially taking out insurances, superannuation and other related services. In 1997 a margin loan was arranged for me and subsequent steps into various investment products were made.

For 22 years I had been a satisfied customer of the Commonwealth Bank of Australia (CBA), the Commonwealth Development Bank, Colonial Margin Lending (CML) and Colonial Geared Investments (CGI) through involvement and ownership in a number of small to medium sized businesses, various loans and investments. The bank and its subsidiaries profited from development loans in 1987, (worth in excess of $1 million) where the bulk of the loans were borrowed at an interest rate of 17% and an additional loan at a rate of 22%. Other business dealings, loans and investments ensued over many years.

Through considerable hard work and long term investments, by early 2008, I had accrued a share portfolio in excess of $10 million. My margin loan facility on this portfolio amounted to approximately $6 million. Understanding the Storm Financial model as I did, and recognising the strong working relationship between Storm and it various partners including CBA, CML and CGI, gave me confidence that appropriate protocols and compliance arrangements would be in place and dependable. I never thought my hard work would result in being over a million dollars in debt with no assets to show for it.

CURRENT SITUATION:

In late 2008, along with many others, I was devastated to find myself in a seriously distressing, financial position. At the end of November, I received a phone call from a Storm adviser, informing me of the catastrophic news that I had been sold down, by CGI, 123% into negative equity. This was indeed a shock since I had not received a margin call notice or even a phone call, as indeed I had received both previously, when I went into margin call, six years earlier.”

Like other Storm clients, I had worked hard over many years, aiming to be financially independent, build enough security to be a self-funded retiree and not be a burden on the taxpayer. At a time when I thought I could enjoy the benefits of my efforts, and be in a position to spend quality time with my children and grand- children, I find myself in a position to have to work full time, just to cover the basics in life.”

“Given that I could no longer gain direction from Storm, I began speaking with the bank. They were clearly not willing to accept any responsibility for their lack of action and were determined to lay all blame squarely on Storm. Their primary focus was on how I was going to repay the debt.”

COLONIAL FAILURES:

In early October 2008 on three occasions when I was in the Brisbane Storm office, I requested they provide me with a copy of the current status of my portfolio. They advised that this would not be possible, due to inaccurate data being fed from Colonial Geared Investments. The CGI data was inaccurate and sometimes days out of date, therefore unreliable. This situation made vital decision making extremely difficult.

I was aware of the imminent need to convert all or part of my portfolio to cash, as a protection against losing the whole of my investments. I was appalled that a major institution the size of CBA, which should have had dependable systems in operation, failed to deliver reliable data, particularly at this critical time. This inaction proves that the product did not meet expectations of either party and hence was defective. Surely a duty of care is required here.”

“In 1997 I signed my original Margin Loan application with CML. From the following clauses extracted from this document, my understanding was that a safeguard and an automatic systems process was in place to cover any downturn in the market beyond my established Loan to Valuation Ratio (L VR).

Extracts from my 1997 margin loan application:

“Margin Call happens when your security falls in value and the Current Loan to Security Ratio equals or exceeds the Margin Call Loan to Security Ratio". It also states that there are options regarding dealing with a margin call and advises what to do if I get a Margin Call:

"We will advise you in writing of both of these amounts plus any fees that you might incur if you choose to reduce the loan balance.”

Clause 37 regulates the giving of notices which: Must be in writing; Signed by a Manager; Sent to the address last notified.

“Feedback since the collapse of Storm and the commencement of the Parliamentary Enquiry, have suggested that the bank's wording in the Margin Loan documents are open to incorrect interpretation or were misleading.”

“On further investigation for answers, Colonial's own website relating to Margin Lending as displayed early in January 2009, states within its Frequently Asked Questions (FAQ's) section:

Q. “What happens if I Do Not Respond Within the Time Limits?"

Answer. “Colonial Margin Lending will sell sufficient security to clear any overdue Margin Call, so that the current Loan-to-Security Ratio is restored to the base Loan-to­Security Ratio".

Again, one could feel assured that the checks and balances were in place as protection against total destruction of an investment portfolio. The above information gained from the Colonial website has since been removed, and when I asked why this information was removed, the bank said they update their website from time to time and don't need to explain the reasons for the removal of some wording.

I have a print out of the above mentioned FAQ's if these are required by the committee, and a copy of the bank's response should it be required.

CBA CONDUCT:

My first impression regarding my early phone conversations with CBA staff was that all blame for the current situation and my losses was placed squarely on Storm. After further calls, I was referred to a senior member of the Credit and Risk Management department, Mr Robert Ralston. One of my first questions to Mr

Ralston was "why did the bank, when I was in Margin Call in 2003, both phone me and send me a written margin call notice and fail to do so this time? Mr Ralston advised that Storm (ozdaq) had been notified in 2003 of the margin call and that I must be mistaken in my recollection as I would not have received a phone call or a written margin call notice, as I claimed.”

“As a matter of course, I requested a number of document copies from the CBA, including a copy of the 2003 margin call letter.

After six weeks and a number of calls regarding same, I received most of the requested documentation; however I didn't receive a copy of the 2003 margin call letter. Amongst the other documents requested was the original Margin Loan Application which arrived with two critical pages missing.

Again I raised the matter of the 2003 margin call letter, and Mr Ralston yet again said I was mistaken, and he didn't wish to continue talking about the matter. He went on to ask if I'd considered bankruptcy.

This matter of the 2003 letter was extremely important to my case as it set a precedent of action from the CBA. I am now in procession of this letter, signed by Brian Phelps, Colonial Margin Lending Client Services, dated 19 February 2003, clearly confirming my account was in margin call and requesting 'this margin call be met within the next five business days'. Appropriate action was taken to inject funds and remedy the situation, allowing me to continue operating my investments.

The fact that a copy of this letter exists when Mr Ralston blatantly and repeatedly stated otherwise, gives me serious concern to the ethics behind this behaviour. I am happy for the Committee to have a copy of this letter, if it is required.”

“In the same conversation, Mr Ralston then went on to question my level of debt. My comment to him was, “if he thought my debt levels were too high, why had the Bank undertaken two 'desk-top-valuations' of my New Farm property within six months? And why had they done this without a request from Storm, or myself, and subsequently offered me additional loan funds for investment?” Mr Ralston stated 'desk-top-valuations' did not exist, and that Storm would have initiated the additional loans, which I know to be incorrect.

Eventually when a letter of offer did arrive from Mr Ralston, he in fact stated 'The Bank does not dispute a desk-top-valuation of your New Farm property ... ". This turn around may have come about due to media articles exposing that desk-top-valuations, known as VAS, were indeed common practise.”

“Once again, this questions Mr Ralston credibility and his refusal to acknowledge the questionable activities of the bank.”

“After many emails, my situation did not seem to improve or progress. I asked Mr Ralston again if he could offer a resolution. He responded with an email on February 16, 2009 stating "the bank is not prepared to agree to any debt compromise". At this point I became even more stressed and wondered where to turn next.

BANK OFFER:

Again I tried to progress with Mr Ralston, who, after a number of requests from myself, eventually presented an offer from the bank on April 21, 2009. The essence of that offer is - if I am prepared to sell my home, apply the net proceeds towards repaying the Investment Home Loan, plus remaining proceeds towards the Margin Loan debt, then the bank would be prepared to write off the residual Margin Loan balance (a debt, which the bank created themselves, as a result of their failure to issue a margin call). He then said this would allow me to have a 'fresh start' without the prospect of bankruptcy. Mr Ralston followed with, "Of course, such an arrangement would also require the parties to release one another from all claims in relation to all loans and in relation to Storm's activities." The offer would have left me with nothing, and he was asking for a release of all claims.

Needless to say, I rejected the bank's offer and was unhappy with the treatment I had received from a bank which had publicly been saying that they were assisting former Storm clients to alleviate their hardship and distress.”

“CONCLUSION:

“After hard work and diligent investing, I had accrued a stock portfolio in excess of $10 million. I am fully aware of the current economic climate and the devastating effect it had on the Australian, and other stock markets in mid-2008. I was totally prepared to cash down my shares to avoid a major catastrophe, understanding that I had a LVR margin buffer.”

“The Code of Banking Practise (modified May 2004), Code 2.2, states, "We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the Contract between us."
CBA is under a duty to:

Exercise reasonable care and skill in acting on a Margin call; and

Monitor the performance of a share portfolio so that it does not fall below the LSR.

I believe the CBA's behaviour and actions were negligent and/or in breach of contract for the following reasons:

On 20 June 1997, I entered a margin lending facility with Colonial State Bank (Colonial), loan number 2257 (Margin Loan) which clearly specified that the previous steps would be taken (as detailed above).

Margin Loan Documents made provision for 'Margin Calls' (Margin Loan Documents contained at Schedule One).

CBA promised to deliver a Margin Call Notice and were under a contractual duty to exercise the Margin Call and provide notice (CBA failed to exercise their obligations in relation the Margin Call, particularly with respect to notice requirements); and were obliged to sell down my portfolio at the established LVR in the event that a margin call was not acted upon (the Margin Call was not acted upon and CBA failed to sell down my portfolio at the established LVR).

In addition to the contractual relationship and duty of care CBA owes me as its customer under the Margin Loan Documents, CBA owe a fiduciary duty arising:

As a result of the existence of the relationship of competence; and

By the understanding by CBA to perform a task or fulfil a duty in my interests, that is to say, to perform the task and fulfil the duty of making the Margin Call and to act on the Margin Call on or about 15 October 2008 to sell shares to ensure that positive equity was maintained.

If the bank had fulfilled its contractual obligations, I would not be a position of total distress and hardship, owing over one million dollars.

After numerous attempts to resolve this diabolical situation, I felt I had no other alternative than to seek legal advice on this matter.

My Claim against CBA:

Negligence and/or breach of Contract for failure to act on a Margin Call.

Negligence and/or breach of Contract for failure to sell down shares in time.

Wrongful claim of early termination interest.

Loss of interest on share portfolio.

Failure in its “duty of care” to carry out the proper checks in relation to home loans.

Loss of my financial independence by destroying my income stream.

CBA's Obligations:

Reinstatement of my portfolio at the position it should have been at sold down.

Interest on the balance of the portfolio to 30 June 2009.

Reimbursement of Home Loans.

Damages / consideration of tax implications as a result of the bank's actions.

(1) I respectfully request that the Joint Parliamentary Committee investigate why CG/'s systems failed to issue margin call notices in 2008, when the process had functioned perfectly on previous occasions?

(2) There appeared to be a very successful partnership which benefited all parties, CBA, Storm and clients for many years, why was the Storm index Fund shut down with record speed, and who bought the bulk of the shares?

(3) Would the committee please ask the CBA to show the protocols for dealing with past and present Storm personnel?

                       [End of submission]

(This is not her full submission. I have abridged it for the sake of brevity.)

Mr. Ralston’s antipathy towards Storm is strange to say the least. Colonial (owned by Commonwealth Bank) offered lower interest rates and higher loan valuation ratios to Storm and was falling over itself to retain that company’s business until the rot set in when the global financial crisis occurred in September 2008. In mid- 2007 the CBA even spent heavily to sponsor a glamorous gala for Storm investors in the fifteenth-century Odescalchi Castle in Italy. How quickly the CBA forget!

Perhaps Mr. Ralston was upset because he didn’t get an invite? Too low down the chain, I suspect!

The CBA’s ploy to distance itself from anything to do with Storm Financial is, of course, perfectly understandable because that is the way big business operates. The marriage between the CBA and Storm had broken down through ‘irreconcilable differences’ and the memories were just too painful for the CBA to bear.

We former Storm clients know exactly how the CBA must have been feeling at that time!

So just how disingenuous has the CBA been in its dealings with the public?

In my previous letter to you dated 23rd June last, I made mention of a Mr. Paul Johnston who was the head of Colonial Margin Lending from its inception in early 1996 until his departure from the company in 2003. Colonial Margin Lending facilities are provided by the Commonwealth Bank of Australia under its ABN 48 123 123 124. Who better than he to tell the truth of it? Let’s hear what he had to say in SICAG’s submission to the Parliamentary Joint-Committee:

“I was instrumental in the writing of clause 4.2 of the terms and conditions which talks about ‘you’ receiving a margin call. My knowledge and practical application of that clause is that the bank contact the client in writing, then the client (in consultation with the adviser) rectifies the position. Again, I should stress that if the margin call wasn't fixed in the five-day period, I immediately sold the client down to protect BOTH parties (unless evidence was supplied that positive action was being taken to get the call fixed. To reiterate:

• At all times during my tenure as head of margin lending, margin call notices were sent automatically to clients, in writing, with advisers copied in for reference.

• If a margin call was not rectified within five days I felt it was my right and duty to sell the client up (unless evidence was supplied that positive action was being taken to meet the margin call) to protect the client and the bank’s position.

• I believe I (on behalf of the bank) was liable for any shortfall if action wasn't taken at the end of five days or 24 hours if direct shares were involved. The five-day window was a generous timeframe compared to other margin lenders at the time.

• The margin call was always automatically generated by a computer system used by the bank called original MLS, now known as ‘EMPIRE’. A margin call notice could only be stopped through manual intervention.

He also said “After consultation with a former IT colleague at the bank, I believe a margin loan facility could not go past 100%. If it did, it would be the bank’s problem, not the borrower’s.” Yet, Ms                 y found herself in negative equity to the tune of 123%, and did not receive a margin call at any time prior to her being placed in this position. How can this be? Unconscionability; failure in its duty of care; unreasonable conduct; violation of banking codes; breach of contractual obligations; are just some of the issues that spring readily to mind.

How can the CBA possibly justify such behaviour or claim to have its customers' interests at heart in such circumstances? It cannot!

So much for the CBA’s concern! It is as hollow as its rhetoric!

What does it say about the banking fraternity in this country when Australia’s largest bank is totally inefficient or worse? Is it fair to ask                   and the rest of us to suffer our losses gladly because the CBA was unable to supply vital information at a time when the financial markets were going into meltdown?

Let me say at the outset that any banking organization that simply relies on another party to do the right thing, and, in so doing, puts its customers’ assets at risk is manifestly negligent to start with. The golden rule in any business is to never assume. This is particularly pertinent when an organization such as a bank has a “duty of care” obligation to its customers. Be that as it may, let’s look at what was actually stated in the CBA’s Submission to the Parliamentary Joint Committee on Corporations and Financial Services in July 2009:

“During the years we dealt with Storm, not unlike other third party licensed financial planners with which we deal, Storm was adamant that as the customer’s financial adviser, it was its responsibility, not ours, to action margin calls.”

That’s funny! I was under the impression that the CBA margin lending arm had a separate margin loan agreement with each individual customer? Further, this margin loan contract incorporates legal obligations, binding on both parties; namely the Lender (CBA) and the Borrower (Customer). Such obligations would have been an integral part of this agreement. Whilst rights can be assigned, obligations cannot without the express authority of the other party, in this case, the borrower. Novation therefore doesn’t apply. Could it be that the CBA overlooked this point? But then the CBA is prone to overlook a number of things that interfere with its bottom line.

“Storm insisted that we were not to call its clients. This is not an uncommon demand by financial planning groups.”

Uncommon or not, it did NOT relieve the CBA of its responsibility to notify its Storm customers directly by way of a written notification when a margin call was made.

“Over a number of years Storm had previously demonstrated a willingness to take any necessary action, particularly in relation to margin calls, as was agreed between us and as had become common practice.”

What’s that got to do with anything? Frankly, what CGI agreed with Storm was irrelevant. Whether it became common practice or not, it still doesn’t excuse CGI or mean that it didn’t have to contact its Storm customers as well. The fact of the matter is that CGI didn’t fulfil its obligations to its Storm customers when it failed to notify them directly of margin calls, pure and simple.

The CBA omitted to mention that CGI (the margin loan lending arm of the CBA) issued written notification to its other margin loan customers who were not with Storm. Documents came to light during the discovery process that showed that margin calls were issued by CGI to other dealer groups in line with standard practice. Therefore, its practice in the case of Storm whereby it allowed Storm to set the parameters was outside the norm and not standard practice at all. It was in breach of the margin loan contract agreements between the CBA and its Storm customers.

Storm Financial had no part or say in the margin loan contracts that its clients had taken out with any bank, be it the CBA or any other bank, because Storm was not a party to those agreements.

“Based on this, we expected Storm would continue to fulfil its responsibilities and deal with its clients on a timely basis in relation to margin calls. We relied on Storm to do the right thing.”

Again, the CBA got it wrong! It was CGI’s responsibility, not Storm’s. Yes, CGI relied on Storm to do the right thing. The fact that Storm didn’t do so is neither here nor there! As I have said before, “one should never assume” especially when CGI was dealing with its customers’ assets. In failing to notify its customers directly within a reasonable time, CGI was responsible for the losses that followed.

“After some delay, when it became apparent this was not occurring, we intervened to advise Storm clients that they were in margin call and took appropriate action as detailed in our terms and conditions.”

When was that exactly? According to the transcript of the meeting with the PJ-C last October, it was some 11 weeks. At a time when fortunes were being lost overnight, CGI took 11 weeks to make margin calls. Incidentally, the BOQ took 3 to 4 weeks. That’s contractual breach right there! It’s not just irresponsible banking practise, it is a flagrant violation of the banks’ duty of care responsibilities. It’s banking practice at its very worst! It’s criminal because the Banks intended to delay making these margin calls for monetary gain. The longer they left it, the more they would be owed. It’s similar to valuation scams they run.

When the CBA finally awoke from its torpor, were these margin calls made by that Bank expressed directly in written form? They were not!

“We are currently reviewing and improving the initial and ongoing due diligence arrangements we apply when agreeing for our products to be advised on or promoted by third party, licensed financial planners. This will include going beyond our regulatory obligations and copying our customers on important communications.”

This statement was pure “lip service” to appease the government and ASIC. Why anyone would believe these serial liars is beyond me!

The CBA also seems confused when it comes to regulatory obligations and contractual obligations. They are not one and the same. You have regulatory obligations under various Acts that the CBA needs to fulfil in relation to Statute Law. Then, the CBA has contractual obligations to its customers that need to be fulfilled under Commercial Law. CBA/CGI failed in commercial law to meet those margin loan contract obligations.

The CBA has stated that it is now “copying its customers on important communications”. I have it on good authority that this had been a standard procedure within CGI in years gone by. This is therefore not a new practice, but a common standard practice that CGI once followed. Such a practice has now been merely resurrected.

“We have commenced a series of initiatives exploring the extent to which our customers were impacted by the Storm collapse, to review our association with the failed group and to understand what could have been done better.

Why bother to spend the money in this regard. I can tell you what could have been done better! Just about everything!

I don’t know about you, but I’m beginning to suspect that the CBA is a little insincere when it makes these type of statements.

In response, a Bank-wide project was established with the dedicated purpose of making good to customers where we had done wrong and, where appropriate, implementing internal process improvements. We are working proactively with our regulators and our initiatives will be subject to external review.

More of the same old, same old!

“While we were one of many financial services organisations offering products and services to Storm’s clients, we believe that, at this time, we are taking a leading position in offering assistance to those facing significant hardship. While we believe that hardship is principally the result of inappropriate advice provided by Storm, we have acknowledged that in some instances, we contributed to that hardship.”

That’s bloody rich considering that the CBA’s involvement led to the biggest losses by Storm’s clients. It was the CBA’s intimate relationship with Storm and its volume of business with that company that set it apart.

No other third party licensed financial planner with whom the bank had a relationship, some 4700 groups or so in total, had such a close relationship with the CBA. This led to:

• Provision of corporate lending to the founders, which was withdrawn on 11th December 2008, causing catastrophic consequences for mutual customers.

• Manufacture of a STORM branded index fund managed by CGS, with funds managed in excess of a billion dollars.

• Provision of margin loans through CGI exceeding a billion dollars.

• Provision of equity lending against property with a loan book in excess of a billion dollars.

• Large volumes of insurance business written through Comminsure, a CBA subsidiary.

• Allocation of a specific Bank/State/Branch [bsb] for Storm.

• Allocation of CBA staff to exclusively handle Storm clients.

• An agreement with Storm dated May 2007 referred to later in this document.

The CBA also stated, “Whilst we believe that hardship is principally the result of inappropriate advice provided by Storm…” That was only part of the problem. CGI and other Banks gave Storm the ammunition by providing it with the opportunity to over leverage its clients’ assets through its practise of extending dubious loans. Whom does one blame? The person that fires the bullets or the person that readily provides the ammo? A gun without any bullets is harmless unless you club someone to death with it. The fact is that Storm’s underhandedness would have come to nothing without the collusion of banks such as the CBA, the BOQ and the Macquarie Bank.

In the final analysis the ultimate reason for CBA’s Storm customers’ massive losses was due to that Bank’s covert agreement with Storm Financial in May of 2007. This agreement blurred the lines for both CBA and Storm in terms of CGI’s obligations and responsibilities to its customers. I say covert, because it was never seen and ratified by CGI’s Storm customers. The CBA’s fall-back position of saying, “Storm was to blame!” therefore doesn’t wash.

The CBA maintained that CGI knew nothing about Storm’s aggressive leveraging model. There is overwhelming evidence that CGI not only knew about Storm’s model, but it also endorsed it as well. You only need to refer to the 8 points mentioned by me earlier which ably demonstrates the degree of co-operation that existed.

CGI’s staff would need to have been blind in order not to see and be part of Storm’s leveraging policy. They would also have had to be dim-witted if they failed to understand Storm’s financial model when Storm and CGI were working that closely together

CGI’s agreement with Storm Financial in May of 2007 was the “open sesame” that allowed both parties to consolidate and grow business for their mutual benefit. Such a policy, by its very nature, placed CGI’s customers’ assets at high risk. A category of risk, I might add, that CGI and Storm were prepared to take without consultation with their customers beforehand. CGI’s partnership with Storm was the catalyst for the disastrous losses that followed when Storm Financial collapsed. This is undeniable in light of the evidence.

Given that a number of clients had also refinanced their homes to further invest in the market, many of Storm’s former clients not only ended up having an unserviceable debt, they also found themselves with nowhere to live.

CGI participated in a scheme with Storm whereby their customers’ houses were mortgaged so that the proceeds could be used for further margin loan borrowing under the Storm umbrella. It’s one of the principles of sound financial advice, that the home is sacrosanct, and it should, therefore, never be placed at risk by borrowing against it for investment purposes. Yet, CGI consistently supported such a policy. Then the CBA turn around and condemn Storm for doing just that! It’s a pity that CGI did not express such concern when they were extending these loans in the first place.

“We sought to assist these clients by addressing issues of immediate hardship. No enforcement activity has occurred for debts owed by Storm clients. We have announced an interest suspension until 30 September 2009 and beyond for those customers who register to participate in our Resolution Scheme (see below).

In late February 2009, we established a dedicated team from across the country and located them on-the-ground in the Townsville community where the hardship was being felt most acutely. We met face-to-face with hundreds of customers to learn more of their current circumstances and, wherever possible, to develop a longer-term plan to help them address their hardship.

The CBA’s approach early on when addressing its Storm customers’ hardships do not support its sanctimonious expression of concern. The feedback to me from many of that Bank’s former Storm customers is that the CBA’s unflinching attitude added to their stress rather than alleviating it.

“Our offers of assistance have been tailored specifically to each customer’s situation and include loan reductions and write-offs, loan restructures, reduced or zero interest rates for the life of a loan and permanent tenancy. To ensure that our customers’ interests were protected, we paid for independent legal advice in each case and, if desired by our customer, for financial advice.”

Since the CBA was one of the major culprits, should it have done any less?

“To address any deficiencies in our lending practices to Storm clients, we have initiated the establishment of a Resolution Scheme to provide swift and fair resolution for affected Storm clients.”

The problem with the CBA’s resolution scheme is that it didn’t address the real issues. These were:

• The CBA’s Storm customers’ rights to compensatory “damages” for CGI’s part in causing their losses.

• The CBA’s obligation to fully restore its Storm customers’ assets because CGI failed to comply with its margin loan contractual obligations to its customers.

• The CBA’s Storm customers’ rights to seek damages for the pain and anguish the CBA’s actions engendered.

The CBA’s resolution scheme was no more than a hardship scheme that did not address CGI’s wrongdoings. Instead, it was an obvious attempt to fob off those Storm customers, subjugate their rights, and by-pass CGI’s obligations under its margin loan contracts with them. In so doing, the CBA was once again acting unconscionably. The fact that ASIC had to step in and negotiate $136 million more for the CBA’s Storm customers over and above what the CBA’s resolution scheme offered speak volumes! Even that wasn’t enough. It was just a small percentage of what every CBA Storm customer lost.

                  y’s treatment by the CBA mentioned earlier in this article is deplorable. Unfortunately, she is not alone because her case mirrors many others. The Macquarie Bank and the Bank of Queensland are just as bad. Unless an example is made of these criminal banks, this sort of behaviour will continue to flourish.

Whether this Government or your Office or both have the temerity to “march into Hell for a heavenly cause” is another thing altogether. Only time and tide will tell. Your track record to date is not encouraging.

Before closing I would like to comment on margin loans per se.

“In general terms (except where a lender has engaged in misleading and deceptive conduct or offers linked financial products), margin loans have previously been unregulated under either the Corporations Act or existing consumer credit legislation.” [ASIC Website]

Because margin loans have not been so regulated in the past, they have presented a “free-for-all” for the banks. The Banks dictate the terms and the borrowers play ball or else.

The banks seem to assume that because margin loans are not covered by regulations these margin loans are above the law. However, when all is said and done, margin loans are contracts in law and the same provisions should apply to them as any other contracts. Furthermore, they should be equitable rather than one sided. Common law demands nothing less. Yet, by their very nature, they are not. The banks, being the lenders, have every right to protect their interests under the contract by making margin calls and selling down their customers shares if need be, but no such rights are extended to their margin loan customers. How, for instance, can customers protect their own interests if banks do not make margin calls so alerting customers to the need to take action? Is this a fair position? Is it a reasonable position? Is it a position that can be sustained in commercial or consumer law? Is it a position that can be sustained in “equity”? No, it is not!

The ‘Goodridge’ v Macquarie Bank Appeal clarified certain points in relation to assignment transactions, especially securitisations. The Appeal judges did not reject the primary judge’s remarks regarding the making of margin loans and the form in which they should be made. In fact there was little in the ‘Goodridge’ case that is detrimental to our case against the Banks. Rather, it reinforces the notion that the banks have an obligation to effect margin calls. The “reasonableness” of contract dictates that such margin calls should be made in a timely manner. The law of “custom” that exists in the market place (margin calls in 5 days) also has a marked bearing on our rights as margin loan customers to be so advised within that time frame.

The judges were also highly critical of the way the margin loan conditions were stated by the Macquarie Bank because they were ambiguous and indeed misleading. How the Macquarie Bank’s margin loan customers could be expected to understand the conditions of a Macquarie Bank margin loan when the Judges themselves had trouble working them out beats me! But again, maybe that was the idea all along? I realize in saying this that I am talking about another bank but they all operate in the same way. Where Storm was concerned, the CBA, the Macquarie Bank and the BOQ were all joined at the hip.

The fact that Macquarie Bank’s margin loan conditions were obscure and confusing reflects the banking sector’s attitude towards its customers. I believe the term is “slapdash!” at best and sinister at worst.

The real reason of course for the CBA and the Macquarie Bank’s foot-dragging where Storm’s customers were concerned was bound up in the secret agreements that existed between these two banks and Storm that breached the banks’ contractual agreements with their Storm customers. I have written to you many times about such but so far I have not received any response? Why not?

[END OF MY LETTER TO ASIC – Extracts only]

Well, there it is! It isn’t pretty but then nothing about the machinations of the CBA can be described as endearing. As a consequence of their underhanded dealings and money grubbing tactics, the major banks in this country have now lost the respect and trust of the Australian people. You can bracket this current government and past governments in with them because they stood idly by whilst thousands of Australians have been taken to the cleaners by these rogue banks. What a joke it has all become! A bad joke at that!

FRANK AINSLIE
12th  May 2018
Last modified onSaturday, 12 May 2018 21:52

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