Australian (ASX) Stock Market Forum

Storm Financial Group

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Are any of the Storm investors involved in the class action against the banks able/prepared to say how it's being funded? If it's going to run for five months or more, the cost is going to be huge.
Clearly the taxpayer is funding ASIC's action. Are the legal firms acting on a 'no win/no fee' basis?
Or are Storm investors finding the funds to pay the lawyers regardless of the outcome?
 
Julia said:
Are any of the Storm investors involved in the class action against the banks able/prepared to say how it's being funded? If it's going to run for five months or more, the cost is going to be huge.
Clearly the taxpayer is funding ASIC's action. Are the legal firms acting on a 'no win/no fee' basis?
Or are Storm investors finding the funds to pay the lawyers regardless of the outcome?
Click to expand...

Hi Julia,

I'm pretty sure that I'm not breaking any confidences here. The Storm investors are funding the action.

Whatever the result I believe this set of class actions and legal actions will be earth breaking in many ways. I strongly believe lots of information will come to light that the public doesn't know and banking/financial advice firms will have to change their practices as a result of it.

Also, I believe the 5 months quoted includes the break over Christmas/New Year.

Cheers
Maccka
 
bunyip said:
As always Judd, you’ve once again hit the nail on the head.

No amount of legal action or legislation will eliminate the potential to get burnt if investors are not prepared to put at least a small amount of effort into appraising the advice they’re given.
Even the simple precaution of consulting two or three financial planning firms, rather than just consulting one firm and believing everything they say, would go a long way towards helping investors to spot the sort of flawed investment advice that brought Storm investors undone.
Click to expand...

No I haven't, bunyip. I probably was not very clear.

If people consider there is a need to consult with a financial planner then do so by all means. I have no doubt that sound advice can and is being provided, such as the interrelationship between assets/income and Centerlink some of which can be complicated.

I just don't believe that people should had funds over and consider that is the end of the issue and all is well now and in the future. That is being complacent and I disagree with that attitude. No matter what course individuals take I simply feel they should not stop doodling around with the numbers using that hypothetical $10 calculator.

But I can understand the attitude as the populace is bombarded about seeking financial advice. Silly example is an article I read while waiting for a friend to have coffee. Article was about the cost of children, blah, blah, blah. It concluded by suggesting that when a woman is pregnant she should consult a financial planner as soon as possible. I would have thought that an obstetrician would have been more appropriate.

Almost every article on finance concludes with "consult a financial planner" as if that is the panacea for all your financial woes. It ain't bloody true.

Only my view of life. Each to their own.
 
maccka said:
Whatever the result I believe this set of class actions and legal actions will be earth breaking in many ways. I strongly believe lots of information will come to light that the public doesn't know and banking/financial advice firms will have to change their practices as a result of it.
Click to expand...

Hi Maccka

I've bookmarked the above paragraph. I hold the view that your statement is an accurate representation of outcomes.

S
 
Cop v bank


"He's the police officer used to taking on criminals and being faced with tough situations, but Sean Mcardle is tackling something that would scare the toughest of men ”” he is going into battle against the Commonwealth Bank."


A Current Affair
Air date: Thursday, September 6, 2012

http://soc.li/EGKqbbJ
 
Solly said:
Cop v bank


"He's the police officer used to taking on criminals and being faced with tough situations, but Sean Mcardle is tackling something that would scare the toughest of men ”” he is going into battle against the Commonwealth Bank."


A Current Affair
Air date: Thursday, September 6, 2012

http://soc.li/EGKqbbJ
Click to expand...


If I were the banks I would be having urgent talks to have evidence not admitted. Lets the bombs explode!
 
Hi Lone Wolf!

I've just finished my coffee!

Once again a very thoughtful reply. We agree on a number of points and where we differ you have explained your reasons fully. I can ask no more than that.

One last thing though. There are many (and you are one of them I surmise) that have assumed that the people that invested in Storm didn't do their homework beforehand. If they had, they would have avoided this mess, you believe! In fact the majority of people did shop around for investment advice including Helen and me.

The insidious thing about Storm was that its strategy did appear sound. People tend to forget that Storm sold us something that turned out to be fiction rather than fact. They told us lies and did not do what they said they would do. How does one allow for that? That's why the directors of that firm have now been charged with deceptive and misleading practice as too have the banks.

No amount of homework will identify those within out society that do unlawful things. We can only ensure that when they transgress we have punitive measures in place to punish them. Let the punishment fir the crime rather than giving these people a slap on the wrist, I say. Further, the CEO's in banks that devise or oversee crooked practices should also not avoid punishment. Unfortunately, many of them do! Unfortunately, at the end of the day, many in the banks who conducted the Storm orchestra will!
 
maccka said:
It seems that Macquarie Group and ASIC aren't enjoying a comfortable relationship at the moment.

http://www.smh.com.au/business/regulator-eyes-millionaires-factory-20120905-25dpl.html

Cheers
Maccka
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Hi Maccka,

We hear a lot about the CBA where Storm is concerned but little about the Macquarie Bank. It may well be, however, that the Mac Bank is in deeper than the CBA although that seems hard to believe. I know there were secret agreements between this bank and Storm but we have no real details of such.

Extract from this article:

“For years, ASIC and the industry-funded Financial Ombudsman Service (FOS) had been fielding, and mostly fended off, complaints about faulty advice, breaches of the “know thy client” rule, failures to formalise advice via Statements of Advice (SOAs) and so forth.”

I rest my case regarding my comments on the financial sector earlier. This says it all!

Extract from another source:

“Sep 05, 2012 (The Australian - ABIX via COMTEX News Network) -- The Australian Securities & Investments Commission has begun an investigation into the private wealth division of Macquarie Group. It is thought that complaints prompted the investigation into possible compliance breaches by advisers between 2006 and 2008. The investment bank also faces litigation stemming from the failure of Storm Financial.”

It looks as though ASIC has suddenly woken up to the fact that it has a duty to protect ordinary Australians rather than big business. Let's hope its resolve is not short lived!
 
Julia said:
Are any of the Storm investors involved in the class action against the banks able/prepared to say how it's being funded? If it's going to run for five months or more, the cost is going to be huge.
Clearly the taxpayer is funding ASIC's action. Are the legal firms acting on a 'no win/no fee' basis?
Or are Storm investors finding the funds to pay the lawyers regardless of the outcome?
Click to expand...

Hi Julia,

SOME former clients of Storm are funding this action. The people that were devastated by Storm fall into the following category as far as our class action is concerned:

1. Some were so ravaged financially that they ended up with a mountain of debt. These have no choice but to rely on ASIC as a possible avenue of compensation.
2. Some consider that any money they have left is better spent trying to survive. They too rely on ASIC for compensation.
3. Some have the money but prefer to let others fight their battles. It’s less expensive that way! These too rely on ASIC but have a bet both ways because it’s not costing them anything.
4. Some have found the money through borrowing or by other means because they know that having “all your eggs in one basket” by relying on ASIC alone is unwise. If they lose, then they will fall into category one. However, they are willing to take this chance because they believe this is the best way of ensuring that they will obtain justice.

Helen and I are in Category 4. We that are in this class action are paying our own legal costs rather than employ a third party to fund us because “no win, no pay” cases see those that offer such recover more than those who use them! Because there are a number of us involved in this class action, our costs will be reduced. However, they will still be considerable!

We have employed a lawyer firm with scruples so we trust our legal fees will be kept as reasonable as possible.

Some have asked, “Why employ lawyers when ASIC is pressing charges?” The problem there is that it’s sometimes hard to work out whose side ASIC is on. We would love to be able to trust in the system but then again, that’s how we got here in the first place.

You have stated, "Clearly the taxpayer is funding ASIC's action." We pay taxes among other things to fund bodies like ASIC so we can be protected from law breakers. We also pay for the boats that patrol our waters and pick up boat people when their boats sink under them. We could, of course, leave them to drown but that would make us as bad as the people that sell them the idea to start with and take their money. We might not agree with them for getting on the boats but we can't leave them in the water either.

There's probably an analogy there somewhere between them and those that invested in Storm. If those on foreign shores did everything possible to ensure that they didn't get on the boats in the first place, would we be faced with this dilemma today? Conversely, if this and previous governments had done everything possible to have the necessary laws in place, would we 'Stormies' be drowning now?

As I've said before, you cannot allow for wrongdoings but you should do everything possible to make those wrongdoings harder to perform!
 
Thanks for the explanation of the funding of actions, Frank.

Be assured I have no problem with the taxpayer funding ASIC's action. I hope ASIC are somewhat better prepared in this instance than they have been in some others.

Who actually hears the case? Is it one judge? A panel?
 
I came across this website - I thought I'd seen and read everything pertaining to Storm.. but not this

http://www.independentaustralia.net...monwealth-bank-drives-investors-into-a-storm/

I thought you might be interested - IF you haven't already seen it.

The above information has just been passed onto me.

Well explained Frank, like you, we are also in category 4. Our last legal team's 'no win no pay' scenario left a lot to be desired!!!

Admire Sean no end for standing up for what he believes in, and there's a lot of us who agree with him
 
THE DARK SIDE OF THE COMMONWEALTH BANK – PART TWO For full article go to:
http://www.independentaustralia.net...monwealth-bank-drives-investors-into-a-storm/

Don’t forget to read Part One as well!

Extract:

“This was intrinsically a ‘dodgy brothers’ scenario, guaranteed to fail.

The Storm Financial model represents variations on a theme of the two-tier property marketing scam. The model would have been impossible without bank funding, especially from the CBA. Without the CBA, other lenders (especially Bank of Queensland, Macquarie Bank) could not have joined in as marginal vultures. I have a colleague who is of the opinion that the CBA was the driving force in the transformation of Storm Financial from a two-bit provincial outfit to the large-scale ‘get rich quick’ enterprise; this is a not unreasonable proposition.

As I have written elsewhere:

‘The bank had been involved with Storm since 1994, but the transformed Storm was evidently viewed within the bank as a profit bonanza. The CBA fuelled Storm’s fantasy – home loans, margin loans through subsidiary Colonial Geared Investments, and ‘wealth management’ of the loans into index funds through Colonial First State. … The CBA’s desktop ‘VAS’ remote valuation system, introduced in March 2008, gave increasingly generous valuations of client property [albeit vigorously denied by the bank], readily leveraged into a higher margin loan and more fees for Storm. The CBA extended Storm clients’ loan to valuation ratio to an unprecedented 80% plus 10% ‘buffer’, and a unique office outlet was established in Townsville to service Storm business. The Colonial arms even paid for a ‘gala ball’ in Italy in 2008 for the smooching of clients. Such was the success that the CBA yearly raised sales targets of the Storm-servicing cell, including for 2008-09.’

The CBA effectively defaulted the whole Storm apparatus in late 2008 (Storm went into administration on 9 January 2009). It sold many Storm clients’ portfolios without them receiving a margin call (the haggle over who was responsible for the margin calls is an irrelevant diversion). It unilaterally dropped the loan to valuation ratio on Storm loans from 80% to 70% in early December, triggering margin calls to clean out any remaining Storm clients. On 10 December the bank unilaterally shut down all Storm-badged products. Yet, as late as 29 October, the bank lent Storm a further $10.165 million to pay out a debt to Macquarie Bank and ‘provide funding for further acquisitions’ (Ripoll Storm Report, p.200). As the dominant lender, the CBA was ultimately in control of the whole Storm apparatus, indifferent to (benefiting from?) the loose cannon that was the Storm’s modus operandi.

The CBA has (atypically) acknowledged some culpability regarding its involvement, which has performed valuable service in quelling any potential political hostility. In June 2009 this:

‘The Bank acknowledges that the position in which some Storm Financial clients find themselves, while not caused directly by the Bank, involves the Bank to some degree. … Said CEO Ralph Norris: “In some cases we have identified shortcomings in how we lent money to our customers involved with Storm Financial … We are not proud of our involvement in some of these issues and we are working toward a fair and equitable outcome for our affected customers.”’

Well might the bank acknowledge culpability. But the CBA has claimed responsibility for some ‘irregularities’, nature unspecified, with promises to make amends, details unspecified. Townsville-based economic consultant Carey Ramm told ABC Radio:

“Certainly I haven’t seen all 2,500 clients of Storm [the number was closer to 2,800] that are held by the Commonwealth Bank, but in the vast majority of the loan documents I have seen out of the Commonwealth Bank, I have been amazed at just how bad the loan documentation has been and a vast majority of those will have to be written off.”

Simultaneously, CEO Ralph Norris claimed:

“The bank is not responsible for the financial advice provided independently by Storm Financial to the bank’s customers. That was clearly the responsibility of Storm Financial, a licensed financial advisory company.”

The CBA’s David Cohen (appearing before the Ripoll Storm Inquiry in September 2009) maintained the mantra:

“… it needs to be recognised that there are other parties significantly involved in the hardship suffered by Storm clients. CBA is not responsible for either those parties or their contribution to the hardship being experienced.”

The CBA’s Matthew Comyn at the same hearings:

“It was not a relationship that ran to the highest levels of CBA. It was an association whereby Storm did refer customers to the CBA … The relationship was no more than a referral of business to us, and we in turn serviced the business.”

Journalist Ben Butler noted comparable disavowals in ASIC’s pursuit of the CBA in the courts (‘CBA links to finance group under scrutiny’, The Age, 6 September 2011):

‘… ASIC alleges CBA, together with Macquarie Bank and Bank of Queensland, were involved in running managed investment schemes, which are required to be registered with the regulator, in partnership with Storm. In a bid to show a managed investment scheme existed, ASIC alleges in its statement of claim the banks ”had a close commercial relationship with Storm”, and then goes on to list three pages of dealings and contact between the banks and Storm.

‘“The meaning of the term ‘close’ is unclear,” CBA says in its defence.’

Your Honour, we might have had several thousand children together but, really, there was nothing to it. On the contrary; the meaning of ‘close’ is utterly transparent. All power and no responsibility – the two-tier property marketing scam revisited.

Seasoned journalist Alan Kohler claimed, at the height of the dénouement in February 2009:

“Storm Financial in Townsville was not so much a Ponzi scheme … as a scandalous partnership between spivs and a bank, that should have known better, to place ordinary people in harm’s way.”

A bank, that should have known better, placing ordinary people in harm’s way? Unthinkable? Rather, Storm Financial was a scandalous ‘close’ partnership between low level spivs and high level spivs, with the latter institutionalising the spivvery on an industrial scale.

The CBA’s formal apology is just words. The Ripoll Committee swooned in gratitude:

‘The committee certainly welcomes the CBA’s readiness to admit its mistakes in the way it transacted business with Storm and Storm’s clients who are also clients of the bank. The committee appreciates the bank making the effort to establish an innovative and fast-tracked resolution scheme for affected clients.’ [par.3.118]

Craven. A few shekels aside, the bank has declined to give substance to the words by stymieing Storm clients’ claims. Witness the bank’s fight against two Sydney doctors, Mark Irving and Anthony Oliver, in the courts during 2011, with the bank arguing that margin lending falls outside the consumer credit code and so anything goes.

The regulators and the political class oblige. The Australian Securities and Investments Commission had earlier audited Storm Financial and given it the OK. ASIC’s submission to the Storm Inquiry was a shocker. It generalised ‘that the current standards in the advice industry are adequate’ (p.37). More, the submission tacitly acknowledges the retail investments sector as corrupted, yet it refers merely to ‘potential systemic issues that have arisen in relation to the role played by lending institutions in recent retail investor losses’ (p.87). Potential? Disgraceful. ASIC has since lifted its game, but many Storm victims remain disgruntled by the impasse.

As for the politicians, the November 2009 Ripoll Storm Report gave the CBA yet another imperceptible slap on the wrist: “The committee is concerned that close relationships and integrated systems, at least at the branch level, and perhaps in combination with bank sales and lending targets discussed at paragraph 3.54, may have caused some bank staff to lose sight of who their true customer was and to fail in their obligations under the Code of Banking Practice to exercise prudence and diligence in their lending decisions [par.3.52].” And that’s it. Margin lending per se is fine, buyer beware, but advisors and lenders should display professionalism in their relationships with clients. It will be business as usual. Fairfax journalist Michael West noted accurately that “This report carries all the weight and ferocity of a wet lettuce.

Colonial First State

If the CBA had really meant business, it would have acted to clean up the culture of its Storm agent, ‘wealth manager’ Colonial First State. No such house-cleaning has taken place. Journalist Colin Kruger elaborates on the essential character of CFS (Sydney Morning Herald, 21 February 2011), a piece that demands to be quoted at length, and the story is not pretty.

‘The Commonwealth Bank-owned Colonial [First State] has collected more than $17 million in fees from the Mortgage Income Fund since it was frozen more than two years ago, locking up $852 million of investor’s money. A year ago, rising loan losses led Colonial to wind up the fund as it could no longer pay distributions to investors. … In a statement the company said: … “The steps taken by us in managing the fund are in the best interests of investors as a whole.” ….

‘The financial statement shows the fund’s income of $14.8 million for the year was wiped out by a $17.2 million write-down in the value of its loans. Adding in $7.9 million worth of management fees paid to Colonial last year, the fund made a loss of $10.3 million. The losses decrease the chance of investors getting back their initial investment.

‘The accounts show the fund’s investments are worth $509.7 million, less than the $518.2 million needed to pay out investors in full. … Colonial has said it may take four years to wind up the fund and return money to investors. Until then, Colonial will collect a management fee of 1.15 per cent of funds under management.’

Veteran journalist Robert Gottliebsen (Business Spectator, 28 October 2008) expressed shock that the “Commonwealth Bank [had] stepped back from the undertakings of one of its wholly owned subsidiaries.” Quite.

Said Gottliebsen:

“Among the likely consequences of the CBA decision is that all bank owned operations that are not directly part of a bank, including their finance companies, will be questioned.”

Not quite. The discretion available to Head Office with these ‘arm’s length’ relationship appears to be well understood upstairs. Nobody who matters, especially prospective customers looking for integrity in the financial services sector, has yet to join the dots.

The only thing that CFS has done since the Storm fiasco is to up its advertising budget, falsely and ludicrously claiming expertise in funds management.”

Anyone who still thinks banks have clean hands in all this needs their head examined!
 
LAST BUT NOT LEAST - THE BANK OF QUEENSLAND

It would be somewhat unfair of me to leave the Bank of Queensland out of this exercise when that Bank is one of the prime candidates for the ‘Storm Customers Busting Award’.

Rather than comment myself, I think it only fair that someone that had a franchise with that Bank speak on their behalf. Here is what that person recently told me (in emails) about the way this Bank went about its dealings with Storm and its former CEO’s involvement. I have omitted that person’s name to protect the source:

Date: Mon, 27 Aug 2012 18:56:30

“Dear Mr. Ainslie,
I have been reading your websites re the Storm fiasco and certain of your comments, including quotes from the Hansard transcript, on Messrs. Liddy and Kangatharan's comments to the Committee.

I don’t know whether you actually captured the following passage however it very clearly states that the Bank had a formalised policy developed to deal with Storm applications and take into account the earning from the investment funds which were being purchased through Storm via a BOQ home loan. This was to facilitate loan approval and essentially stop the application having to be dealt with at BOQ HO on an exception basis.

CHAIRMAN””If you discount down to four or five per cent, how does a pensioner even cover the cost of the funds? How is that possible? How does that work in numbers? That $104,000 per annum would have been their total earnings from the portfolio

Mr. Kangatharan””To clarify, in terms of that discounting back, there was a policy variation that was applied and approved. Before that approval, if any of the income from the Storm financial plan was to be included in an application it would go through an exception process. That is where the independent head office staff in risk assessment would give authorisation for the inclusion of that income. Where that was the case, it is possible that it is more than five per cent that was actually included. In this particular case, it is quite possible that on a $712,000 investment that the return component was calculated at eight or nine per cent.

In other words the Bank was clearly aware of the North Ward branch's activities and had developed policies to allow them to turn around loans quicker than normally might be the case.

In other parts of the Hansard report Mr. Liddy refers to the Bank's automated credit decision process for home lending as a branch's "delegated authority". A real delegated authority allows the branch to approve a loan without referral to a higher authority regardless of whether or not the loan is approved by the system.

Date: Fri, 31 Aug 2012 11:45:57

"Hi Frank,
We were told by the Banks that the co-owners of North Ward were the most successful OMB in terms of performance, ie new loan business. It was often the case that these guys were used as the role models for all aspiring OMBs to mimic.

How did they do it?

The Bank said they (the OMBs in North Ward) were always out of their offices visiting clients, getting off and on planes etc, etc. Note: no substantial reasons for success were ever provided just "fluff". If we did what the boys at North Ward did we would all be rich etc, etc.

Our own view, of course, is that this scruffy little branch which wasn't even on street level in Townsville (a small rural city in FNQ), could not have "honestly" produced these types of lending results without bending/shattering the Bank's policies.

For example, irrespective of what Liddy said it was a hard and fast rule of the Bank's that the branch had to interview any borrower on a face-to-face basis. We know this as the Bank knocked back deals for friends we had interstate as no face-to-face contact had occurred.

Secondly, whilst the OMB did not have a "territory" as such the Bank was not keen on local branches going interstate to get business.

These rules make good sense from a lending quality perspective.

OMBs were also not supposed to be dealing with brokers regardless of whether or not they received a commission. We were allowed to pay a couple of hundred dollars to introducers, eg real estate firms, accountants etc but were expressly forbidden to deal with brokers for housing loans. NB for certain types of commercial lending the bank still used various brokers to source new business but in mid 2004 stopped using any brokers for home lending applications. Home lending for the purpose of the discussion includes lending against the home for investment purposes. The Bank and not North Ward would have had to formally approve the document (not a Bank form) which the borrower provided to the Bank to allow North Ward to deal directly with Storm and not with the customer

So the North Ward branch breached a number of the Banks prime policies which were enforced against virtually all other OMBs.

It is inconceivable that the Bank did not know precisely what was going on at that branch (and possibly others) as, at least in theory, Liddy stated that HQ had to approve all loans. Kangatharan also stated that they had developed a process to streamline applications so they could be approved by the system.

Almost none of the OMBs we knew had the power to personally approve a loan application. It was punched into the Bank's auto approval system and if it was approved the branch had all the authority it needed. If the system declined the application then the branch could not proceed with the deal unless the defects in the application were corrected.

The system had checks built in to ensure that incomplete applications were not even processed - instead the system would highlight the missing data which had to be inserted before it would fully load up and assess the application.

If the application was declined then it had to be referred to a centralised credit unit, presumably in Brisbane, who would examine the application and revert to the branch for more information.

If the correct application details especially in relation to the borrowers assets and liabilities and income and expenses had been input to the system there is no way it could have been approved under normal circumstances.

For example, the Bank always wanted to know the reason for the loan although Liddy said he wasn't sure. (NB Elsewhere Liddy says he didn't even know what a margin loan was so pardon my scepticism). Good lending practice demands you know why a person is borrowing the money.

If its going to be used to repay other debt, buy a holiday house, investment property add an extension etc the Bank wants to know.

In the case of purchasing an investment property the bank wants to know all the details of the new property and discounts the rental flow to add a more conservative view of the additional income which will be produced to balance off the additional loan repayments which are almost always higher if the maximum tax benefits are to be enjoyed. The bank would also want a mortgage over the new property. Even if the borrower already had a home loan with BOQ and wanted to release the equity to make the purchase they would have insisted on encumbering the new property.

In other words a very conservative approach.

Contrast that with the way Storm applications were handled and all the Bank's conservative rules go out the window.

There are a number of questions which need answering.

1. If the borrower owned a home free and clear and came to the Bank and asked for a loan of 80% of the value would the bank have provided it to them if their pension and other income would not cover the repayments. Answer is no.

2. If the same borrower approached with a low doc loan application which allowed 60% of the value of the property to be loaned would the bank do that for a pensioner? Not impossible but many questions would be asked. PS Low doc customers had to have, according to the Bank's own policy, an ABN. How many pensioners do you know who had one of these.

3. If a pensioner rocked up and asked for a $300k loan against their property and told the Bank they were going to invest the funds into shares through a margin lending program what would the Bank do? Whilst it cannot provide financial advice it would have to determine if the customer would be in a position to repay the loan that it was providing. If their pension entitlements precluded their capacity to pay the loan should be declined.

Let's say they had the income to repay the BOQ debt then the application passed the first hurdle. The next question would be how high will the applicant gear the $300k loan using a margin facility. Let's say 3 times. The borrower now has a debt of $1.2m and assets of $900k in a share portfolio The property provides no income). The loan rate is always going to be higher than the deemed earning rate on the funds provided that the funds earning rates are assessed prudently. At that point the income/loan payment ratio fails the test and the loan should be declined. That's before you get into the margin call issues which I would bet were never fully understood by most borrowers.

4. How did the Bank get around this - by using the low doc process in which they had the borrower sign a statement that they had the capacity to repay the debt. This statement however in no way excuses the Bank's lending practices and its implicit requirement to deal with its customers appropriately. We often speculated how North Ward could write this volume of lending as they only had a relatively small staff - obviously if Storm completed all of the applications then all North Ward had to do was input them to the system and also fill in the blanks as required. An interview(s) with a client and preparation of an application and all the other docuemnts is a very time consuming job as the process always never goes smoothly

5 The reason the Bank entered into this arrange with Storm and BOQ did this is that it needed to lend as much money as possible and given that the margins on low doc loans were approx. 1% higher than the more competitive home product types it was profitable and very safe business as they only loaned 60% of the property value. They also knew that the types of borrowers involved were the solid, honest types who would do the right thing by the Bank even if they ate cat food for the rest of their lives.

6. In my view North Ward and the Bank were in this business completely together and both were fully aware of the risks that were being taken. At the end of the day if the share market crashed then they still had a mortgage on the borrowers property which they could always exercise and even if the property market crashed they had a 40% buffer.

7. Like most schemes founded on the connivance of the likes of BOQ and North Ward the customer was always the one to cop it sweet with all the other players getting away Scott free. I feel the Bank is the most culpable as it was in a position right from the start to deal with loan applications from North Ward/Storm in a proper manner and introduce policies to apply much more prudent rules to protect the Bank and borrower. That they willingly participated in this venture makes them the prime mover in the scheme and the most culpable."

Date: Fri, 31 Aug 2012 19:18:17

"Hi Frank,

The other point I failed to mention is that it is my understanding that the lending volumes being achieved by North Ward were perhaps as much as 8 or 10 times better than the average lending performance for the balance of OMBs located throughout the country.

That is why Liddy made them branch of the year on a couple of occasions - no other reason.

In my experience when you have a branch, or anything else, outperforming the mean by that much you either copy exactly what the staff are doing to roll it out elsewhere so everyone can benefit or if you cant do that thoroughly investigate why such performance is occurring.

If, upon investigation you determine that the success is based on shonky practice then you either kill it or embrace it and tell no one the truth.

As I say, I think that both the branch and the BOQ are up to their necks in it.

There may have been one other branch in the network that had similarly high volumes and it was very suddenly and very unexpectedly closed without hardly any notice and no fanfare."

Date: Sat, 1 Sep 2012 08:13:16

"Hi Frank,

I suspect that the rules (of the Bank) pertaining to low doc loans, under which policy , as I understand it, most of the investment loans were written, were changed as a result of the Storm fiasco.

It's important to note that the prime reason for offering low doc loans, other than the increased margin and lower risk (60% LVR) was to accommodate self employed customers who hadn't filed tax returns or who couldn't prove their incomes generally due to the nature of their employment and somewhat loose bookkeeping practices.

This is why low doc loan applicants had to have either an ACN or ABN (cant remember which).

In other words the low doc loan process was bastardised to allow pensioners, who could obviously prove their income with documentation and who certainly would not have not either an ABN or ACN, to borrow money without making a full application.

My gut feeling is that the Bank will try to use this line to say that they didn't know either the applicant's current or future income or expenses. That of course falls in a heap with Kangatharan's admission they developed a special policy to streamline these particular loan applications plus the other policy breaches I outlined in a different email.

In my view the North Ward office was in a position of knowledge when it came to understanding why and for what precise purpose the money they were lending was to be employed. Back to the low doc scenario, had they input the pensioner's income (provable) into the system the application would likely have been rejected as the income would have been too low to support repayments and other expenses. The bank's low approval system like every other banks' is a complex algorithm which determines the customers ability to make the payments and still have a life. Banks do this to ensure they are protected against risk and are seen to be responsible lenders.

Remember the low doc loan process bypasses all these safeguards.

To answer your question the low doc loan policy was "bent" by North Ward branch with the complete cooperation of the Bank in order to approve loans against real property which would not have been able to have been approved in most cases based on the pensioner's declared income. NB presumably not all applicants were pensioners. It would be interesting to see if the bank used the normal application process (ie not the low doc policy) for working applicants whose income would be sufficient to service the loan - if you could find such applicants it would go a long way towards proving the bank/North Ward was bending their own policies to ensure the loans were approved one way or another."
 
Julia said:
Thanks for the explanation of the funding of actions, Frank.

Be assured I have no problem with the taxpayer funding ASIC's action. I hope ASIC are somewhat better prepared in this instance than they have been in some others.

Who actually hears the case? Is it one judge? A panel?
Click to expand...

One Judge Julia. From what we have seen so far he seems to be fair and reasonable. Certainly, he realizes that this is a complex case and if he doesn't get it right, the Banks will appeal his decision if it goes in our favour. They probably will anyway but it has to be on a point of law. I feel he is striving hard to avoid this happening.

Some info about the man that some 'Stormies' may find of interest:

"John Edward Reeves (born 2 January 1952) is an Australian politician, lawyer and judge. He was a Labor member of the Australian House of Representatives from 1983 to 1984, a prominent barrister in Darwin afterwards, the author of the controversial 1999 Reeves Report on Aboriginal land rights, and has been a Judge of the Federal Court of Australia since November 2007.

Reeves remained a prominent figure in the Northern Territory legal community, serving as President of the Northern Territory Bar Association from 2000 to 2005 and Vice-President of the Australian Bar Association from 2003 to 2004. He also served as Deputy Chair of the Legal Practitioner's Complaints Committee, and as Chairman of the Northern Territory division of the Australian Red Cross. He was also appointed to the taskforce of the Northern Territory National Emergency Response in 2007.
Reeves was appointed to the Federal Court of Australia in November 2007, as one of the last judicial appointments of the Howard government. He was the first judge to be specifically based in Darwin, which had previously been served by interstate judges in an acting capacity. In March 2009, however, he was transferred to Brisbane, following concerns that the judicial workload in Darwin was not sufficient to warrant a resident judge, and a number of cases from which he had to withdraw due to potential conflicts of interest with his past legal work as a barrister.
Reeves is one of only six politicians to have served in both the Parliament of Australia and the Federal Court of Australia, alongside Nigel Bowen, Robert Ellicott, Merv Everett, Tony Whitlam and Duncan Kerr.
His notable decisions include (in no particular order); Stoddart v Boulton [2009] FCA 1108 regarding spousal privilege at common law in Australia and QGC Pty Limited v Bygrave [2011] FCA 1457 dealing with the role and registration of Indigenous Land Use Agreements. Reeves is currently the docket Judge for the Australian Securities and Investment Commission's litigation against the collapsed Storm Financial Ltd. The litigation also involves the Commonwealth Bank, Macquarie Bank and the Bank of Queensland. The case is due to be heard in the second half of 2012 and will involve Australia's most prominent barristers.
On 1 May 2009 Justice Reeves was appointed as an Additional Judge of the Supreme Court of the Northern Territory. Justice Reeves travels to both Darwin and Alice Springs in this capacity."

 
Frank Ainslie said:
Hi Lone Wolf!

I've just finished my coffee!

Once again a very thoughtful reply. We agree on a number of points and where we differ you have explained your reasons fully. I can ask no more than that.

One last thing though. There are many (and you are one of them I surmise) that have assumed that the people that invested in Storm didn't do their homework beforehand. If they had, they would have avoided this mess, you believe! In fact the majority of people did shop around for investment advice including Helen and me.

The insidious thing about Storm was that its strategy did appear sound. People tend to forget that Storm sold us something that turned out to be fiction rather than fact. They told us lies and did not do what they said they would do. How does one allow for that? That's why the directors of that firm have now been charged with deceptive and misleading practice as too have the banks.

No amount of homework will identify those within out society that do unlawful things. We can only ensure that when they transgress we have punitive measures in place to punish them. Let the punishment fir the crime rather than giving these people a slap on the wrist, I say. Further, the CEO's in banks that devise or oversee crooked practices should also not avoid punishment. Unfortunately, many of them do! Unfortunately, at the end of the day, many in the banks who conducted the Storm orchestra will!
Click to expand...
+1 Well said Frank.

Harleyquin said:
I came across this website - I thought I'd seen and read everything pertaining to Storm.. but not this

http://www.independentaustralia.net...monwealth-bank-drives-investors-into-a-storm/

I thought you might be interested - IF you haven't already seen it.

The above information has just been passed onto me.

Well explained Frank, like you, we are also in category 4. Our last legal team's 'no win no pay' scenario left a lot to be desired!!!

Admire Sean no end for standing up for what he believes in, and there's a lot of us who agree with him
Click to expand...

Thanks for that link Harlequin - it made for enlightening reading! I thought this bit deserved a direct quote as it speaks to the idea that the banks were simply carrying out business as usual and not an intrinsic, if not essential, component that the strategy revolved around: (see next post)
 

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