Stretched over several days of hearings, the banking royal commission heard testimony from four former business leaders — Michael Doherty of hospitality development firm Doherty Group; Stephen Weller who had run the Nambucca Hotel; Brendan Stanford who operated the Coronation Hotel in central western NSW; and Michael Kelly, a former Bankwest employee turned Perth property developer — about how they were all pushed to the wall by Bankwest.
All four men, their businesses, families and colleagues were victims of what was called Project Magellan, an audit of well over 1,000 commercial loans instigated after Bankwest found itself in trouble during the onset of the GFC in 2008.
Commonwealth Bank (CBA) acquired Bankwest late that year, and a review of its loan book found serious misgivings about business loans in particular.
CBA’s group chief credit risk officer, David Cohen, testified to the commission that there had a been a 13-fold increase in specific provisions for distressed commercial loans at the time of its acquisition, and that the quality of Bankwest’s business banking loans were not of the calibre it had expected.
One key concern CBA had was an over-exposure to property developments nationally, as well as hospitality venues like pubs – particularly in NSW.
Project Magellan sought to address this over-concentration of loans in these particular fields and reduce the risk of loans held on its books.
Yet, as the examples of the men outlined above demonstrate, Bankwest’s approach seemed to be forced liquidation or receivership, by falling back on the now illegal clause permitting it to make unilateral modifications to the loan agreement.
Across the testimonies of the four men, Bankwest was repeatedly described as “arrogant” and lacking in transparency, forcing up the borrower’s operating costs, dragging out application times for finance extensions, making incorrect assessments of the business’ profitability and refusing to consider alternative strategies that would have allowed the businesses to continue trading.
One claimed to have spent more than $500,000 on chartered accounting fees in a bid to help the bank understand its financial position and operating forecasts. Another testified that Bankwest hired independent investigative accountants to conduct a review of his business, then hit him up for the $9,900 bill — despite withholding their final report, and the accountants’ invoice, from him.
Only Mr Kelly’s two associated development companies survived, given his inside knowledge of the bank helped him to refinance with a different lender — but he too feared being wiped out.
Mr Doherty lost everything, Mr Weller was forced to sell the family home to pay off his debts, while Mr Stanford choked back tears as he outlined the devastating depression his brother spiralled into as their efforts to save their pub came to nothing.
CBA’s Mr Cohen conceded that Bankwest had insufficient skilled staff to deal with loan provisioning, that its business relationship managers did not fulfil their duties diligently and that its credit assessment processes were below par.