- The royal commission into misconduct in banking heard from another hotel owner who fell out with Bankwest just a few years after taking out a $1.2 million loan to buy the pub.
- The country pub, near Lithgow, was bought for $1.6m and three years on was valued at $1.55m, but just two years later the bank sent in accountants who valued the business at $250,000.
- While the pub’s operators were made to pay for the report, they were not given a copy, despite asking for it.
- The firm behind the valuation were subsequently appointed receivers and sold the business for $525,000.
In 2006, Brendan Stanford went to Bankwest with his brother Michael seeking a $1.2 million loan to buy a pub in Portland, 170km west of Sydney.
The former Australian Federal Police officer already had five years under his belt running a successful pub in the Hunter Valley, and paid $1.6 million for the Coronation Hotel, a sprawling corner pub in the historic town, population 2000, near Lithgow.
Three years later, in October 2009, the pub revalued under the terms of the loan and was worth $1.55 million.
But a year later, in the wake of the GFC, turnover had slumped and while the Stanfords continued to service their loan, they fell behind on their tax obligations. They got a $20,000 overdraft from the bank, but a request to switch to interest only on the loan was rejected and they ended up overdrawn.
A new loan agreement was drawn up in mid-2010 and they were required to report their financials quarterly, but missed the first deadline and were sent a breach notice by the bank.
Bankwest’s concerns led them to send investigative accountants PPB Advisory into the business unannounced to check the hotel’s financials.
Brendan Stanford told the royal commission into misconduct in banking today that the 2011 visit cost him nearly $10,000, which he discovered when the bank’s lawyers wrote to them demanding PPB Advisory’s bill be paid within a week. The cost was added to the company’s overdraft.
“There was nothing said that would have raised a flag there was an issue forthcoming,” Stanford told the commission.
However, there was a bigger shock in store. The accountants declared the hotel worth $1.55 million two years earlier had lost more than 80% of its value and was now worth just $250,000.
Brendan Stanford had his lawyers write back asking for a copy of the valuation and a tax invoice for the $9,900 bill he’d been forced to pay, but received neither.
“It wasn’t a good feeling to be on someone else’s turf and be told that your business is worth $250,000 and we are not going to show you why,” he said.
And that’s when he knew they were on the chopping block.
“We were easy targets in that relation in the fact that we’re high asset businesses but we’re low cash flow.”
He tried to argue that it was simply a cyclical phase in the five years of the business, and it would recover, but Bankwest wasn’t interested, he told the commission.
Stanford said the bank he was dealing with was “arrogant” – he pushed for meetings to discuss a way forward – but felt the relationship “was not recoverable”.
He lodged a complaint with the financial ombudsman but in 2012 his focus turned to being treated for leukemia and the complaint lapsed.
By 2014, the brothers were looking to sell, but the market was awash distressed sales, although the hotel was actually valued at $900,000 at that point.
With an the agreed deadline of June 2014 looming but no buyer, they made an offer to the bank to reduce the loan balance – $200,000 within a week with further $100,000 a month later. Michael Stanford’s partner was willing to provide the cash. It was rejected by Bankwest, which said it had already made enough concessions.
When the deadline passed the bothers upped the offer to $400,000, again with cash from the partner.
Asked by senior counsel assisting, Michael Hodge QC, why she was willing to invest, Brendan Stanford told the commission she worked locally and thought the business was viable.
“She wouldn’t have made that commitment unless she thought it was a viable option,” he said.
But Bankwest’s response was that it “will not engage in a further banking relationship and simply require to be repaid”.
However, if the brothers handed over the $400,000 before July 4, 2014, the bank said it “may consider” giving them eight weeks to refinance.
A few days after that deadline, Bankwest appointed PPB Advisory as receivers. They shut the pub, then sold it. Stanford heard much later that the price was $525,000. The bank did not seek to recover the outstanding loan balance from the brothers.
Asked by Hodge about the impact on his sibling, Brendan Stanford said: “to see all that work that you’ve done over an extended period just to have a rug pulled out from under you, I think it affected him more in that sense than me”.
Emotion began to overwhelm him and commissioner Kenneth Hayne offered a short break.
On his return, Stanford struggled for composure, then said: “From the time this was instigated I saw him struggle and even after it all happened I saw him depressed for a few years. That’s why I’m here today because he couldn’t come in.”
CBA goes through Bankwest’s books
The royal commission continues on Wednesday with the Commonwealth Bank’s chief risk officer, David Cohen, in the witness box, explaining “Project Magellan” a plan to assess Bankwest’s loan book after CBA acquired it in 2009 and discovered it had a high exposure to the hotel industry in NSW, as well as commercial property.
Bankwest’s exposure to commercial property was $14.8 billion in September 2009, but reduced by $550 million in the three months to the end of the year.
Project Magellan sought to review nearly two-thirds of Bankwest’s book looking for “troublesome or impaired” loans with the potential to cost the bank money amid concerns of inadequate provisioning.
All hotel and pub loans were reviewed as a consequence, along with any loans more than two years old where the security value was higher than $5 million.
Around $1.4 billion worth of loans were deemed troublesome or impaired.
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