Todays AFR
Storm investors take B0Q to court
Duncan Hughes duhughesafr.com.au
The Australian Financial Review 119 Jun 2009 I Page: 54 I Financial Services
Bank of Queensland will face legal action today from about 1300 former Storm Financial Services investors, after its refusal to follow Commonwealth Bank of Australias lead by offering compensation.
The board of law firm Slater & Gordon last night approved the case, which seeks damages for an alleged breach of Bank of Queenslands duty of care and alleged unconscionable and misleading conduct in its treatment of customers.
Lawyer Damian Scattini, who has been representing Storm clients, said representative rather than class actions would be brought because of the difficulty in establishing sufficient common ground between investors. A representative action usually involves using an individual case for future settlements.
It follows the admission by CBA chief executive Ralph Norris on Wednesday that the bank had made mistakes, and the suspension of repayment obligations until August 31 and an undertaking that existing settlements would not preclude more payments.
“In stark contrast, Bank of Queensland has been completely bloody-minded and impractical,” Mr Scattini said. “Its like a bunch of schoolboys refusing to admit fault after being caught smoking behind a shed. If they want to play that way, so be it. We like an outing [in court].”
Mr Scattini claimed the bank had threatened to countersue the law firm for costs and launch a counterclaim against the former investors for providing misleading information about income when making loan applications.
A spokesman for the bank denied the claim.
The Australian Financial Review has previously revealed the intimate relationship between Storm Financial and the Bank of Queenslands north ward Townsville branch that allegedly enabled massive amounts of money to be lent to investors who had little, if any, chance of paying the interest unless stockmarkets provided double-digit returns.
Andrew Cook, a former CBA Townsville bank manager turned financial adviser, claims Bank of Queenslands lending practices to Storm investors were worse than those of CBA.
“CBAs loans had some semblance of reason. The Bank of Queensland plucked figures out of the air, there was no reason in many of their loans,” said Mr Cook, who has spent several months working pro bono with former Storm victims. “If the CBA has admiffed defeat, then surely its time for Bank of Queensland to follow.”
An internal report submitted to Storms board of directors shows that by August 2008 Storms clients had invested about $4.9 billion in its various self-branded index funds, with about 37 per cent, or $1 .8 billion, funded by margin lending. Investors are believed to have lost about $3 billion in the collapse.
Labor MP Bernie Ripoll, chairman of the parliamentary joint commiffee on corporations and financial services, which begins public hearings next Wednesday, has also stepped up pressure.
“The CBA has now admitted to making mistakes and now is the time for the other banks involved in this unmitigated disaster to act in good faith towards their clients and follow suit,” Mr Ripoll said.
Restoring Storm investors to their original position could cost CBA about $800 million and Bank of Queensland between $250 million and $300 million, according to estimates by Carey Ramm, the Townsville-based principal economist at AEC Group, a consultancy with offices in four states.
Northern exposure Stephen Reynolds
"CBA needed some good publicity before next week?s public hearings in federal parliament, where it is going to cop a bucketful. Those bastards at the Bank of Queensland are also up to their neck in it", said Mr Reynolds, a 70-year-old Vietnam War veteran who was geared to $1 .2m through a Bank of Queensland home loan and Colonial Geared Investments margin loan.
Barry Peace
"Talk is cheap, lets see some action," said Mr Peace, a 54-year-old grandfather and retired panel beater who lost $1 40,000 on a CBA margin loan. Peace, who lives in Townsville, also has a $500,000 mortgage with the Bank of Queensland
Elizabeth Corcoran
"l hope Bank of Queensland will offer a moratorium on payments," said Ms Corcoran a 62-year-old florist and marriage celebrant who lives on Magnetic Island, off the coast of Queensland. The mortgage on her house was used to invest in Storm andleft her $273,000 in debt.