Landmark and Bankwest divide Hayne

Ian Rogers
Why all the fuss?
ANZ received a bollocking over its handling of Landmark customers in the interim report of the royal commission, while there is disdain for the complaints of Bankwest business borrowers from the commissioner.

Drawing conclusions that run contrary to at least one premise of a class action against CBA over its post 2008 stewardship of Bankwest, commissioner Kenneth Hayne dismissed what he labelled "the Tier 1 Capital Ratio theory and its variants referring generally to 'economic capital' or 'regulatory' or 'prudential' requirements."

These are, Hayne declared, "demonstrably false."

The commissioner applied the same conclusion to the better known "clawback theory", studied in detail by the Parliamentary Joint Committee on Corporations and Financial Services in 2011 and 2012, with Hayne's conclusions in line with those of findings in 2017 by the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell.

Of this theory, Hayne described it cynically; "it was said that CBA did what it did to reduce the amount it had to pay for Bankwest.

"Sometimes, it was said that loans were defaulted to give CBA a claim against HBOS plc, a UK bank, for breach of warranties given in the sale and purchase agreement.

"More recently it has been suggested that CBA acted as it did because, having bought Bankwest cheaply, it could afford to write down the value of the loan book it thus acquired.

"That is, having paid less than the face value of the loans it acquired, writing off the loans it still left CBA profiting from the acquisition."

But Hayne, whose counsel-assisting rubbished the pet theories of agitated Bankwest borrowers back in June, posed questions that will only inflame the stirrers.

"If loans were sound and well-secured, why would CBA deliberately set out to bring the loans to an end? What motive could CBA have to act in ways that would not maximise its profit from the transaction?" Hayne wrote.

Having dealt with the primary Bankwest topic in the first volume of his interim report, the commissioner parked most of his assessment of ANZ and Landmark in the second volume summarising all case studies.

Evan Jones, a retired academic from Sydney University, has argued that one of the principal reasons the Hayne royal commission got up and running at all "was farmer outrage at the treatment of Landmark borrowers."

Thus the mundane rather than analytical summaries of the Landmark case studies in Hayne's second volume of his interim report lacks the colour and insight that might be expected.

Only in the narration of the case of Stephen and Janine Harley, sheep farmers from Western Australia, did Hayne rustle up modest annoyance.

"It is obvious that one day is not sufficient time to vacate a property of the kind in question," Hayne said of a tense finale to an "asset sale process that had been going on for some years."

ANZ constructed much of the tension for the Harleys and others.

By the time ANZ took possession of the land and appointed its agent in possession, the Harleys' file had been in Lending Services for more than 30 months, Hayne said, adding that "this was then at the outer limit of the target for turnover of agribusiness files within Lending Services.

"It is impossible to resist the inference that 'finalisation' or 'completion' of the file had become an end in itself.

"But the consequence here was that properties were sold a month or two before the time that the owners thought best with no formulated expectation that this would bring some identifiable commercial advantage to the bank.

Hayne chided ANZ, defensive over its handling of Landmark, for the milder repeat offences of conduct falling below community expectations rather than misconduct.

For his helicopter view on ANZ and Landmark, Hayne kept his comments mild.

"One of the chief lessons that ANZ took from its experiences after acquiring Landmark's lending book was the need to establish a special 'agri team' in Lending Services (as it did in August 2014).

"Without specialist knowledge and experience, the manager of a distressed agricultural loan may not recognise and take proper account of what the presentation to ANZ's board described as 'the special challenges facing the rural sector'."

ANZ's board, Hayne recorded, agreed that "the agricultural sector faces special challenges such as adverse weather cycles and market fluctuations which [at that time, 6 August 2015, had] resulted in difficult farm operating conditions for a sustained period of time."