Bankwest introduced a secret policy to lower the risk of its loan book as the global financial crisis wreaked havoc by reducing its exposure to commercial property by $1.3 billion over 12 months, the Hayne royal commission has heard.
The existence of the target was revealed in an email tended to the royal commission in relation to a series of small business operators who bore the brunt of the decision, subjecting them to delays, confusion and in one case the appointment of receivers.
The email was forwarded by Commonwealth Bank’s former head of rural and agri-lending in 2009, Jon Sutton, who has been the CEO of Bank of Queensland since January 2015. Commonwealth Bank acquired Bankwest from HBOS in 2008 at the height of the GFC.
The royal commission heard evidence that to meet its target of reducing its exposure to the higher-risk commercial property sector by more than $100 million every month Bankwest would cease rolling over loans it deemed high risk, with independent auditors Grant Thornton involved in the risk assessments.
The policy was known as Project Magellan and many former customers of Bankwest believe this target was used to unfairly tip them into default so the bank could meet its target.
The email contained findings from analysis provided to Bankwest’s risk committee in March 2009 which found $14.2 billion, or 50.3 per cent, of the bank’s total committed exposure was to commercial property and the bank was seeking to reduce that to 45 per cent within 12 months.
Commonwealth Bank’s head of restructuring, Brett Perry, said he was not aware that Bankwest had a target to reduce loans to the sector at the time but agreed there was a general sense that risk associated with commercial property was on the rise at the time.
“My view is that was a concern right across CBA as well,” he said.
The royal commission heard from three case studies, including WA property developer Michael Kelly, NSW hotel owner Stephen Waller and Victorian hotel developer Michael Doherty, about Bankwest’s management and enforcement of small business loans.
Mr Kelly was a former Bankwest banker and was developing two projects in WA known as Silversun and Wildlines. Over a period of several hours he detailed his difficulty with the loans including the rising price of credit during the period and the constant changing of contacts at the bank.
“The bank was repricing its book. We had to grin and bear it,” Mr Kelly said.
Another feature of Mr Kelly’s experience was the wild swings in valuations. If the values of the properties were revised down heavily enough, they could fall outside the loan-to-valuation ratios required by the bank and motivate the bank to decline to refinance at the end of the term.
Stephen Weller, a certified practising accountant from Mosman, spoke of his experiences with Bankwest when a hotel he bought in Nambucca Heads was lost to receivers after the bank changed his terms from 15 years to two years.
Mr Weller also saw the value of his property revised downward, seemingly arbitrarily, in late 2009 by Bankwest. Bankwest declined to share the valuation with him but indicated it was 100 per cent of the loan. After a series of muddled communications with Mr Weller it declined to refinance. A deed of forbearance was entered into and shortly after it reported a breach and appointed receivers to the hotel.
Business Insider Emails & Alerts
Site highlights each day to your inbox.