I am now retired but found myself by chance in 2000 as an academic dealing with a bank victim (Commonwealth Development Bank customer foreclosed by a rapacious Commonwealth Bank in the process of closing down the CDB). Dr. Evan Jones
To: Matt Keogh MP & Matt Thistlethwaite MP and respective staff
Members of the House of Reps Standing Committee on Economics
Re Four Banks Review hearing and the National Australia Bank
From: (Dr) Evan Jones
Late of the Department of Political Economy, University of Sydney
3 February 2019
I am now retired but found myself by chance in 2000 as an academic dealing with a bank victim (Commonwealth Development Bank customer foreclosed by a rapacious Commonwealth Bank in the process of closing down the CDB). Investigations led to my writing on the subject of bank malpractice, which led to further victims contacting me. The dialectic continues to this day.
As a consequence, I have acquired rare exposure to the extent and character of bank malpractice in Australia, mostly with respect to small business and family farmer victims.
I have had a long-term liaison with Mr John Salmon, who spent the bulk of his working life at the NAB and who carried into his retirement in the late 1980s an intimate knowledge of then NAB procedures. Salmon subsequently found himself advising SME/farmer victims, adding to his knowledge, not least victims of the bank for which he had worked for decades.
Salmon and I are in an atypically ‘privileged’ position to offer substantive comment on matters I discuss below. I have written many articles with respect to the NAB (some in conjunction with Salmon). I have made many submissions to Parliamentary inquiries, which incidentally refer to NAB operations.
Thorburn’s narrative and the reality
I have belatedly read the transcript of the ‘Four Banks Review’ hearing of your Committee at which NAB CEO Andrew Thorburn appeared, 20 October 2018. I have read it in conjunction with the transcript of hearings of the FSRC 26 and 27 November 2018, at which Thorburn and NAB Board Chairman Ken Henry appeared.
Let me congratulate you on your questions to Thorburn on the 20th October, and on bringing up particular cases of customers foreclosed by the NAB.
Let me also congratulate Labor on its forums to hear victim stories and the summary statement of its findings from the forums in its submission in response to the FSRC’s Interim Report. In a brief period, Labor managed to capture the essence of small business/farmer victimisation that the well-resourced FSRC has failed (or declined) to recognise.
Thorburn has misled the Committee in some key respects.
Let me hone in on Thorburn’s reply to a MK question (p.14) at which he claims the victims of misconduct were (1) ‘a vast minority’ and (2) ‘we didn’t intend for this to happen …’. Dramatically wrong on both counts.
The NAB has consistently engaged in malpractice against SMEs/farmers since the mid-1980s. That the NAB has the greater market share in this crucial domain of the economy has merely given successive bank administrations the opportunity to effect greater predation.
The victims constitute far more than a ‘vast minority’, and the means by which they became victims has been facilitated by an entrenched culture. To what extent successive CEOs are aware of what goes on in the bank beneath them is an important and unasked question, but there is no doubt that much malpractice is legitimised at or emanates from the highest levels. There is also no doubt that successive CEOs have been personally confronted with individual complaints and that they decline to initiate redress for those complainants and fail to investigate and reform the structures that led to such victims arising in the first place.
Thus did CEO Thorburn and Board Member/Chairman Henry inherit a bank with many entrenched problems. But what have they done?
In the first instance, the NAB’s involvement with Clydesdale & Yorkshire was a fiasco from start to finish. Thorburn and Henry divested C & Y but effectively did a ‘James Hardie’ in granting the new bank CYBG a sum for compensation vastly inferior to that required.
On the 26 November, FSRC counsel assisting asked Thorburn ‘Do you think NAB has an ethically oriented culture?’ To which Thorburn replied ‘Overwhelmingly, yes. Unfortunate cases where I would have to say no.’ The CYBG divestment is definitely one of the ‘unfortunate cases’. But not one Thorburn and Henry would admit to.
The NAB participated, with other UK banks, in the PPI scam – a scam that it has acknowledged (under substantial pressure from the UK authorities) – but the NAB’s pushing of the toxic fixed interest swap facilities (otherwise known as Tailored Business Loans), conceived at Head Office, has been everywhere pushed under the carpet. Only a couple of articles in the Australian media over many years has referred to them. Meanwhile the victims find no authority in either the UK or Australia to acknowledge their victim status and its extent. The de facto complicity in bank malpractice amongst UK authorities (centred on the power of the City of London) is another story.
The TBL saga remains a running sore, and unwitting CYBG shareholders are the bunnies who will face the consequences should the victims ever get redress (which at this stage, alas, remains improbable).
As noted, the NAB has a long history, since the mid-1980s, of cynical and brutal discretionary default and foreclosure of SME/farmer borrowers.
Even in the arena of (‘disability’) unconscionable conduct where judicial precedent is with the customer, the NAB blithely continued to ply its trade against hapless guarantors in spite of perennially losing in the courts (Nobile 1988, Garcia 1998, Petit-Breuilh 1999, and Ashton 2001). ACCC Chair Allan Fels gave the NAB a blast over the Ashton affair.
[Unfortunately the Fels era at the ACCC gave way to the do-nothing Samuel era. Moreover, unconscionable conduct in financial services was taken from the ACCC and given to ASIC in 2001 (following those idiots on the Wallis Committee review), with ASIC subsequently completely ignoring, indeed denying, its mandated responsibility in the sphere. The implications of this rampant neglect of course are well understood by the banks.]
As John Salmon has noted, given his long inside experience and subsequent observations, the NAB’s modus operandi is to try on anything. If the NAB is found out, internally deemed unlikely (as it turns out, generally a correct presumption), the banks wears it but changes nothing. This decidedly unethical approach remains the strategy today.
Some NAB victims
The Faye Andrews case that you mention is representative of NAB perfidy from an earlier period. This was a criminal scam pure and simple. Nothing to do with any potential adverse impact of the GFC on property values (ditto the equally criminal large-sale CBA takedown of Bankwest customers after 2008, a scam which, lamentably the FSRC joins in condoning).
The Claire & Chris Priestley farming case (also, with Andrews, on Thorburn’s select list) highlights other dimensions of bank strategy. Essentially predatory lending to begin with, middle of a drought, that implies ‘asset lending’ (i.e. not on business prospects, but on the prospect of later appropriating borrower assets). Several years down the track, facilities are restructured, with the predatory bill facility (which few borrowers understand) to the fore, penalty interest rates, and all set up for default at bank discretion. The moment the drought broke the bank wanted the Priestleys to sell up (of course, without crops in place).
The bank ultimately appropriates not merely the farming asset but also RAA drought relief funds along the way ($400,000) while imposing millions in penalty interest rates. All this while advertising its expertise and compassion in the agribusiness sector.
While we’re on a grab bag listing of NAB casualties, it is salutary to mention the Thirups, victims of a criminal gang who had one member inside the NAB, manufacturing false mortgages. The NAB, ably assisted by one of many reputable law firms prepared to do anything for a buck, appropriated the Thirups’ residence, bizarrely courtesy of a Court judgment (NSWSC 911, 17 August 2011). It appears that the criminal gang acquired the residence. Fortuitously, the gang is being pursued by police for a broad range of crimes, but somehow members can’t be bothered to turn up to court or keep being granted deferral. How is this possible? The Thirups’ lives have been destroyed. Peculiarly, it appears that NAB involvement is nowhere in evidence in these proceedings.
In a more recent case of a couple (now estranged), the NAB lent the errant male additional funds (which he had no hope of repaying). The bank subsequently attempted to head off the inevitable losses by claiming that the female had given a guarantee for the additional funds. She of course knew nothing of the transactions, and no such guarantee existed. The bank long persisted, even claiming that the Iron Mountain document storage contractors had the document but had misplaced/lost it. Documents belatedly made available to the female disclose that her signature had also been forged. FOS joined in in complicity with the bank (the key person involved remains with AFCA, in spite of victim complaints regarding this continuity). The female, with costly legal assistance and incriminating information at hand, belatedly achieved a settlement of sorts, though after long delays, the latter assisted by yet another reputedly reputable law firm doing the dirty work. The saga continues, with the NAB still involved (via the errant male) belatedly trying to make someone else pay for its incompetence and venality.
This curious case of the non-existent guarantee, by the way, is one of those cases where incompetence/chutzpah by a lending manager was supported and condoned all the way to the top. The same causation applies to the NAB’s takedown of the Somersets in the late 1980s, a tragic case that Salmon and I have documented at great length (see my submission).
Thorburn has claimed that employees found to be involved in corrupt activities are readily dismissed. The NAB did dismiss a swathe of employees in 2017, but in the SME/farmer lending arena this process does not appear to be in place. Salmon’s insider experience taught him that front line employees found to be engaged in corrupt activities (as in the Somerset case) were not sacked but moved aside into inconspicuous locations, sometimes even later promoted but certainly were ultimately retired on comfortable NAB lump sum payouts. Indeed, if lending managers are being moved aside, cases known to us show that they are managers who have supportive relationships with customers who have been designated for the chop (the McMinn child care centre, and a more recent Queensland case which the victims, feeling under threat after being forced to sign an oppressive settlement, prefer to keep unremarked).
There are other cases where the crime is directed from the top. Exhibit A for this phenomenon is the NAB takedown of Wide Bay Bricks and its principals Sante and Rita Troiani, a case that you desirably brought to Thorburn’s attention.
The takedown of WBB is arguably the most corrupt destruction of a small business ever perpetrated by a bank in Australian history. It is mindboggling in its bastardry. From the inducement to Sante Troiani to become a bank customer, achieved in 1993 and with a predatory lending package, through the secretive default in 1996 to the summary judgment against the Troianis as guarantors in 2001, and subsequent fights through appeals and the bankruptcy courts, this is a case of labyrinthine complexity. It must have taken an army of NAB operatives to keep the takedown in play until the final denouement.
Salmon and I have written snippets about the WBB/Troiani case. Over the years, Salmon has written multiple documents on various technical details. Unfortunately, no document exists that summarises the story for outsiders.
The WBB/Troiani saga of course (as with most SME/farmer foreclosures) involves the spectrum of complicit or corrupt partners in crime within the ‘professional’ domains of law firms, consultants, valuers, receivers, the odd real estate agent – all of whom take their share of the booty, under the bank’s umbrella, from the hapless victim’s carcass.
The courts themselves are part of the story. Heavens! No wonder the FSRC skirted over the SME/farmer arena as quickly as possible.
In the WBB/Troiani case, Paul de Jersey, Queensland Supreme Court Justice/Chief Justice, decisively intervened in his March 2001 summary judgment. Salmon has made long-time attempts with various Queensland authorities to have de Jersey brought to account (WBB being merely one of a string of questionable hearings and judgments involving first Westpac, for whom he acted as barrister on retainer, and then NAB, his banker) – to no effect.
In a 2013 article (on the Priestleys), I claimed that: ‘The National Australia Bank is a corrupt organisation. It also runs a bank on the side.’ That pretty much sums it up.
Bank malpractice and its extensive support team
I have laid out, in summary fashion, the broad character of bank malpractice in the SME/farmer lending domains, in my initial submission to the FSRC in February 2018 (attached). The Commission did not see fit to interview me, nor indeed any of the handful of people who have both a broad view/experience of the nature and extent of the problems and a non-partisan detachment from the conflicts.
In terms of the general background to the banking sector having license for malpractice, I have a summary of the big picture as chapter in a recently published book, Wrong Way: how privatisation and economic reform backfired (Cahill & Toner, eds.).
Unhappily, as Labor MPs, you will have to confront what I see as a significant contribution of Hawke-Keating Labor to the broad background that facilitated the current parlous environment – not least the whitewash 1991 Martin hearings and report, and the privatisation of the Commonwealth Bank (put into the hands of the mercenary bloodless David Murray). How does one deal with the gods, all too human, in the Labor Pantheon? There is also the Labor reps going through the motions on endless Senate Economics Committee hearings.
The NAB unrepentant
Thorburn’s offer of mediation to several dozen NAB SME/farmer victims at the time of his 20 October appearance, via former Victorian Premier Jeff Kennett cum arbitrator, is now exposed as high farce. Whether Thorburn was cynical from the start or whether he has been moved aside in setting the agenda is as yet unknown (how long Thorburn will last as CEO into the new year after his extended holiday will provide a clue).
Rita Troiani, widowed after Sante’s premature death, has been turned back by Kennett. Kennett admitted to knowing nothing about banking, but has reproduced the story given to him by the bank, a story transparently erroneous in details. Kennett early claimed that WBB was brought down by internal machinations by WBB staff and retainers, end of story. Of course, WBB staff/retainers were in on the scam, but they were induced by the bank itself to join in the takedown, and the major players amongst them became significant beneficiaries of the bargain basement selloff of WBB assets and Troiani personal assets. The self-made man Sante Troiani (he arrived without a penny) and his Wife built up an innovative and thriving business and accumulated tens of millions of dollars of assets. The NAB cleaned out the lot. Sante Troiani was a whiz at making bricks with innovative design (over 40 patents), but (not uncommon amongst his generation of migrants) unfortunately he left the accounts to others – those people being brought into the conspiracy to destroy him.
Thorburn promised the several dozen select victims the relevant paperwork. The NAB, of course, has been past master in withholding key documentation during litigation with customers. Bank non-disclosure (or disclosure at the eleventh hour when digestion proves impossible) is an integral dimension of bank foreclosure during litigation, a wretched phenomenon which the courts have been generally happy to tolerate.
In the Troiani mediation, Rita has received no paperwork. And no monetary offer. Refused a single penny.
To my mind, this outcome of the Kennett so-called mediation highlights that it will be business as usual at the NAB.
A several-years-old indication of the entrenched character of NAB’s dysfunctional culture is the litigation in NAB v Rice (another guarantor case). The NAB effectively argued that the Code of Banking Practice (much puffed up over decades as the greatest thing since sliced bread) was essentially discretionary. Fortunately, Elliott J sent the NAB packing, judging that the Code was an integral component of the loan contract (VSC 147, 23 April 2015). The NAB, either stupid or suffused with chutzpah, then appealed. Fortunately for truth and justice (rare events in bank litigation), the NAB also failed on appeal. There has to date not been a mea culpa on the part of the bank.
Accountability: there is none
At the 26 November FSRC hearing, Thorburn is asked by counsel assisting (in the context of being questioned on correspondence between ASIC and the NAB regarding remediation procedures for the fees-for-no-service scam):
[Hodge] ‘And you looked at the letter at the time or you’re not sure? [Thorburn] ‘No, I’m not sure whether I saw it before it went but I can tell you I’m accountable for it.’ [Hodge] ‘What do you mean by that, that you’re accountable for it? [Thorburn] ‘Well, I am the CEO of the company and that has gone under our letterhead.’
The buck, for everything, stops with Thorburn. As it should.
It is, however, entirely possible that Thorburn has not been apprised of the fine details behind 30 years of NAB malpractice. He has certainly not sought to inquire. Otherwise, he would not have offered himself up as a sacrifice. And he has certainly sought to minimise or to hide the problems that persisted when he was brought in in 2014 (as with Clydesdale and Yorkshire).
But Thorburn would know, intuitively if not consciously, that regulatory indifference and the difficulties in corporate law in holding persons accountable for crimes of a corporation over which they preside means that he will be never in practice held accountable. Possibly he will be sacrificed by Henry, out of expediency, but his successor will enjoy the inbuilt immunity.
Business as usual, thanks to the FSRC’s myopia
As with the NAB, it is indeed likely to be business as usual with the banking sector in general with respect to SME/farmer lending.
It is important to mention that Bendigo and Adelaide Bank has generally passed under the radar. The handful of second tier banks, as I have argued elsewhere, cannot be distinguished from the Big 4 in terms of their treatment of borrowing customers. They have seen what the Big 4 get away with and have done likewise. BAB, as the largest of the second tier, is a particular worry. I am privy to the account of a poor bastard (and his brother) who run a small business in outer suburban Melbourne, and whose lives have been put on hold by the BAB through an essentially corrupt procedure by which the borrowers were induced to hand over security over their residences (unnecessary) with the BAB subsequently reneging on its promise to treat the security as a temporary phenomenon. Superficially legal, but that of course merely reflects that complicity of the law and the regulatory structures in criminal activity. Stealing borrower residences, throwing them on the street, is as easy as falling off a log.
The FSRC, as noted above, has curiously sidelined/treated cursorily the SME/farmer borrowing sector. Of course, the FSRC was handed the contradictory elements in a Terms of Reference that gave the Commission a broad sweep of subject matter investigations and dictated a brief period in which to cover them. Something had to give. (Then why isn’t Hayne requesting a second Commission, passing the baton to someone younger than himself to last the distance?)
It seems reasonable to infer that the FSRC made a strategic decision in marginalisation of SME/farmers. Financial advice, insurance and superannuation (the latter cursorily) have been emphasised, precisely the areas that the media has emphasised over the years.
Dealing adequately with SME/farmer borrowing requires an investigation into the character of the loan contract and the fundamental asymmetry of power between lender and borrowers that allows the lender to default the borrower at will. It also requires an investigation into all the on-the-teat professional arenas (as above) which are essential to maintaining and reinforcing bank power and discretion over SME/farmer loans. How can that be done in a couple of weeks? Ludicrous. And, of course, it is a political hot potato in which all of Australia’s key institutions, including Parliament itself, is implicated. Who wants to go there?
And the judiciary (as noted above)? Who, with even the slightest sense of self-preservation, is going to take on that untouchable class?
The Royal Commission, for all its faults, has opened the door. SME/farmer victims are now better organised. They are not going into oblivion, committing suicide (some are still doing that), and now decline to go away. Their pressure will ultimately have to be accommodated. For me, the sooner the better. Perhaps I can reclaim my own life in the process.
The media, assisted by some members of the political class, are currently harping on about the potential cuts in business credit that is likely to occur if the banks are brought too much to heel in their practices.
The blackmail is already in. This diversion of the agenda is dangerous. The fundamental issue is the sector’s corrupt practices (and the entrenched culture behind it) and what the authorities will do to stamp it out.
Corruption is corruption, period.
In passing: penalty interest rates, and the revolving door
A note in passing. I add pragmatically some comments on default/penalty interest rates at the end because it’s not obvious where I might more rationally insert it.
Your fellow Committee member Craig Kelly, at the 20 October hearing, tackled Thorburn forcefully about the nature and purpose of penalty interest rates. Kelly, as you would know, is atypically knowledgeable about SME problems, previously a small business operator himself but also an adviser to small business – keenly aware of corporate predation against the sector. He would have been in his element in the Small Business portfolio. But do the Libs really care about small business? Or, for that matter, do the Nats really care about the family farmer? We know the answer, but its not reflected in voting patterns.
Thorburn and Henry did agree, under political pressure, to withdraw the penalty interest rates imposed on the hapless Smith family, and then promised not to impose such rates on farmers in general who are suffering under drought conditions. But how long will this last? And what about farmers not experiencing drought or deemed to be not experiencing drought (who decides?), or SMEs in general, all of whom can suffer the pain of discretionary bank default?
Why penalty interest rates at all, and certainly, why rates at usurious levels – the latter a Kelly question. Yet they have been applied consistently across SME/farmer borrowers (even for borrowers on watch) and across the decades.
Thorburn gave the customary answer that penalty interest rates reflected the heightened cost of administering loans in difficulty.
Absolute rubbish. The costs of administering loans in difficulty is minor compared to the penalty interest rate returns, as Kelly observes. And the borrowers themselves bear the serious costs (parasite lawyers and receivers, and sale of assets under value) entailed in default and foreclosure.
In short, penalty interest rates are a ripoff. Worse, they are an integral dimension of strategic default, a key means of hollowing out a business that has been designated for the chop. Representative is the ‘Three Turks’ case where NAB broke its commitment to renew funding and imposed a penalty margin of over 10 per cent (Kay v NAB, NSWSC 1116, 30 September 2010).
SMEs/farmers are already paying higher base interest rates, formally defended by the banks as a reflection of greater risks in SME/farmer lending. But banks lose greater quantum from lending without security to corporates. Banks charge SMEs/farmers higher rates and penalty rates because they can, period – a reflection of asymmetric power in the relationship. The higher rates are also a reflection that banks are too cheapskate to invest in training staff to acquire genuine expertise in SME/farmer lending (as per the Commonwealth Development Bank, killed off in 1996).
I brought up the issue of penalty interest rates with Senator John Williams in 2012, during the Senate Economics Committee so-called Post-GFC Banking Inquiry. I argued, reasonably, that penalty interest rates were a discrete phenomenon that an activist Parliamentarian could take on with a better chance of gaining traction. Senator Williams ignored the invitation.
The penalty interest rate remains ripe for a considered treatment, seemingly manageable for reform in an independent manner while reform to the entire apparatus is cranked up over future years. Every little bit counts.
A second note in passing. I personally find intolerable the fact that a sometime Secretary of the Treasury now presides as Chairman of the Board of a bank, more, a bank whose sins remain generally unacknowledged and unaddressed. This is the revolving door at its worst. Of course, a precedent was set with David Morgan, senior Treasury official who was part of Treasury’s collective guilt in ignoring bank malpractice during the deregulated cowboy 1980s (witness the foreign currency loan saga), who jumps ship to the then known corrupt Westpac, later becoming CEO without significantly reforming Westpac culture (at the same time garnishing much social cachet by topping the meaningless ‘corporate social responsibility’ indexes). Morgan compounds the problem by bringing his colleague over from Treasury to serve as Board Chairman. What does this revolving door opportunism do for would-be principled junior staff in the central agencies whose formal priority is the service of the public interest in the formulation and overseeing of appropriate regulatory structures for the banking sector, of fundamental importance to the economy as a whole?
This letter was sent to the Labor MPs on the day before the Hayne Commission’s Final Report was made public. I was not to know that Hayne would single out Andrew Thorburn and Ken Henry for special criticism. The text of this letter has been slightly modified for reasons of confidentiality.This article was written by Dr. Evan Jones BCom Melb. MA Mich. State. PhD Mich. State