Royal commission dismisses CBA 'ulterior motive' theories on BankWest
The financial services royal commission has dismissed claims that the Commonwealth Bank had an ulterior motive to systematically default loans following its purchase of BankWest in 2008.
Counsel assisting Michael Hodge told the commission on Monday there had been various ulterior motive theories raised about the process.
“The common element is they attribute to CBA an ulterior motive to systematically default loans,” he said.
Mr Hodge said significant work had been undertaken by the commission to look at the history of the ulterior motives theory.
“We have made the decision that none of these ulterior motive theories rate consideration by case study,” he said.
However, Mr Hodge said this did not mean CBA's handling of the loans was proper and the commission would consider case studies next week relating to how the bank treated customers of BankWest after acquiring it.
The clawback theory
Mr Hodge said two ulterior motive theories had circulated, the first of which was the clawback theory relating to the purchase price paid by CBA to HBOS for Bankwest.
"The clawback ulterior motive theory is that CBA acted deliberately after it acquired BankWest to impair some loans so that it could claw back the amount of the impairment from HBOS under the price adjustment mechanism," he said.
However, Mr Hodge said the clawback theory "is not supported by either the facts or the operation of the contractual mechanism".
Tier one capital ratio
The second theory Mr Hodge dealt with was the theory that CBA impaired loans on the BankWest loan book to improve its tier one capital ratio. This theory is that the CBA board resolved in February 2009 to lift its internal tier one capital ratio above 7 per cent.
But Mr Hodge noted that at this date, CBA's tier one capital ratio was already above 7 per cent, sitting at 8.4 per cent, the highest of the big four banks.
"Most significantly, impairing and provisioning alone do not reduce a bank's tier one capital ratio, rather it reduces the bank's tier one capital ratio," Mr Hodge said.
Distractions
Mr Hodge told the commission there was a hidden bias in these kinds of ulterior motive theories.
"They allow the convenience of avoiding grappling with the risk presented by a particular borrower or industry," he said. "They therefore avoid asking how a bank might or might not legitimately respond to its perception of increased risk in respect of a particular loan or lending in a particular industry, and in what circumstances such conduct might be unconscionable or below community standards."
Small business lending and the policing of loans is the focus of the third round of the royal commission starting in Melbourne on Monday and continuing for two weeks.
CBA's treatment of customers who were lent money by Bankwest, which CBA acquired at the peak of the global financial crisis, is expected to be further scrutinised. The bank has previously denied any wrongdoing.
More to come