The Australian Financial Review has a peculiar view of bank malpractice: that it doesn’t exist. All this kerfuffle is really the result of bank customers’ complaining about the tragic consequences of their own failings.
The Sydney Morning Herald has devoted months to reproducing fake news on world affairs. Its stablemate has maintained comparable standards regarding coverage of Banking Royal Commission hearings.
On 5 December 2017, the Fin deferred to David Murray, the former Commonwealth Bank CEO, for whom the impending Banking Royal Commission was a threat to the system’s stability. This blowhard drove the CBA’s concerted thrust into an ethics-free culture, yet he is still sought after as expert commentator.
In Part 1 (8 December) of my Clayton’s Banking Royal Commission series, I noted that Tony Boyd, the AFR’s decades-long financial columnist, pooh-poohed the necessity of a Royal Commission. Boyd’s opinion set the scene for much ensuing commentary.
On 13 December, fellow AFR writer Aaron Patrick declaims, with respect to a story involving Westpac:
'But the self-styled whistleblowers and bank victims may find that disillusionment awaits, and possibly come to wish the government had immediately gone ahead with its plan for an independent tribunal to hear their complaints and order compensation.'
The disgruntled borrowers are the source of the conflict. Patrick assumes that the bank’s belatedly constructed “customer advocate” centres are independent. These centres merely dig victims further into the mire, as is their intention.
The editorial of 12 February is representative. It claims:
'The financial sector royal commission … is fundamentally a political response to the core problem of dysfunctional politics, rather than of fundamental problems in Australia's banks. … there is no evidence of systemic corruption, criminality or even widespread unethical behaviour in Australia's big banks.'
The author of this garbage finds no evidence because s/he hasn’t been looking. If s/he had cared to contact me, I could have given them a long earful.
$€Ł500 free transfer! https://t.co/I2DSs32UBH The AFR View: banking royal commission must maintain rigour and focus https://t.co/8CTmaKQnnX pic.twitter.com/Te8yH957ql
— Stuart Hanna (@Stu_Art_Hanna) February 11, 2018
This editorial also claims that Commissioner Hayne
'… is a mostly black letter jurist with a record of upholding the law as it is written. In rejecting a claim that NAB had acted unconscionably, he unflinchingly [sic] told the customer: "You asked for the loan, you got the loan, you gave the mortgage, you have not paid the money back. You do not need to persuade me that there are real, live personal issues profoundly affecting you, your wife, your children. I understand that. I have got to bring you back, though, to the law."'
There is no sourcing for this quotation. It comes from Norman v NAB, HCA (20 July 2012). More, the “quotation” is a compilation and paraphrasing from the text, without ellipses.
IA contributor Matt Norman and his wife Rebecca applied to the High Court for a stay of possession after having been denied justice and abused in the lower courts. Tess Lawrence has disclosed fragments of their experience in her 2012 articles here and here.
Hayne had to decide on a narrow point of law, but the transcript has a farcical Gilbert and Sullivan character — marked by venality (Adam Segal, NAB’s counsel) and insouciance (Hayne). The Norman litigation experience highlights that the hallowed “black letter law” is a charade.
The editorial writer, blithely producing a quotation with neither citation nor context, has flouted a basic rule of journalism.
Patrick’s article on 22 May 2018 is the all-time doozy — an exemplar of gutter press journalism. I sent a condemnatory letter to the paper but, curiously, it was not published.
Counsel Assisting Michael Hodge had opened the two-week small business slot on 21 May with a disclaimer that the CBA had nothing to hide with its foreclosure of hundreds of Bankwest commercial property borrowers and that the borrowers’ inferences regarding CBA motivation had got it wrong. Of which more later.
The CBA, claimed Hodge in repeating the bank’s line, discovered belatedly that Bankwest’s loan portfolio was nasty and that the Global Financial Crisis had pushed multiple borrowers underwater. It was thus perfectly reasonable, indeed inevitable, that the mass foreclosures took place.
Patrick has it that Hodge 'nailed the lie' of the borrowers. Yet one borrower 'wouldn’t let go of the conspiracy theory'.
Conspiracy theories wrapped around a lie? This is shocking stuff. It appears that he has read nothing of the foreclosed borrowers’ experience.
Patrick continues into the mire:
'When a parliamentary inquiry couldn’t stack up the “constructive default” theory …'
Patrick here refers to the Senate Economics Committee’s 2012 Post-GFC Banking Inquiry. This Inquiry was mooted to investigate the Bankwest customers’ takedown, but forces unknown rebadged the inquiry with terms of reference of grand and fuzzy scope to dilute genuine investigation into the Bankwest issue. Who made this grievous decision?
Some Bankwest victims were heard at the Post-GFC Banking Inquiry and victim submissions were made, but the Bankwest issue was pushed off the table without apology. The Senate Committee, itself divided on Party lines, didn’t try to “stack up” any theory of default. Lacking investigative powers, and tolerating lies from CBA and Bankwest executives, the inquiry and report brilliantly pushed the Bankwest victims into oblivion. So, Patrick is re-writing history.
Patrick moves on to traduce Philip Ruddock. Ruddock is depicted as the political “go to” man who has pushed the barrow of these unworthy borrowers (some of them Ruddock’s constituents) for a second Parliamentary inquiry (Impairment of Customer Loans) on an agenda with no merit.
I have no brief for Ruddock, but unlike the bulk of Members of Parliament who ignore their bank victim constituents, he did take their complaints seriously.
The Sydney hearings of the Impairment of Customer Loans inquiry that I attended had Committee member Ruddock bending over backwards to push the bank’s case, embarrassingly so. A good act? Who knows, but there was clearly no demonstrated partisanry on show.
Patrick concludes this disgraceful article with Ruddock’s response:
‘It is very very clear that in relation to the loan book at Bankwest there were people whose loans were impaired when they were meeting their obligations, paying when required to pay and were constructing buildings that could be sold at a profit and the bank paid back. The people were in my view treated very unjustly.’
Ruddock is right.
The day after Patrick’s abomination of an article, the Fin delivers an editorial that is off the spectrum — 'Banking Royal Commission can’t undermine "caveat emptor"' (23 May).
It hauls in again David Murray as authority; his views are characterised thus:
'… if the legal framework applying to banking became predicated on "seller beware", the cost of credit could rise, and lending more scarce. That would slow overall economic activity and make financial institutions much more risk averse.'
This is all so much palaver, but the implications are significant. Murray implies that the banking sector’s functioning depends upon the sector’s reliance on systematic corruption. Choice!
The editorial claims:
'There were always going to be plenty of "victims" from the commission who really just lost out to circumstances, or poor judgment or the actions of others.'
Meaning? Just lost out to circumstances? The author sees no strategic foreclosure mechanism instigated by the banks. Poor judgment or the actions of others? Presumably not including that of bank personnel. Contemptible.
The editorial cites two cases of customer takedown and asset appropriation dealt with by the Commission.
Its response:
'Notwithstanding the fact that loan paperwork was filled out poorly, ambiguously or perhaps even fraudulently, at the heart of both case studies were people who were approved for loans that were then not paid back because a business went sour. More evidence may emerge, but this strikes at the heart of "buyer beware".'
Caveat emptor in banking? Does the Fin have any self-respect?
If a loan manager faces a would-be borrower with a non-viable mortgage or business proposition, the inquirers need to be so educated and sent away properly informed, rather than the bank taking guarantees from hapless family members and entrenching inevitable appropriation of various family residences. That’s what professionalism is all about.
Consider the implication of caveat emptor for all “professional” fields. No more being struck off for malpractice for doctors, solicitors, financial planners and so on. Indifference, incompetence and predation are to be legitimised. Let’s abolish all regulations and all regulators!
How does the prospective borrower “beware” of bank fabricated documentation (unknown to them), possible forged signatures, unilateral alterations in the contract, discretionary default though the borrower has missed no payments and so on?
And bank advertising? It is universally a lie and contrary to the law. But customers who take it at face value are the guilty parties.
Here we have corruption at the heart of an essential service for which the customer is at an innate disadvantage. Does the concept of a banking license – an immense privilege made available to institutions only on formally stringent rules – have any meaning?
That’s the advantage of editorials. One can write complete shit without responsibility or attribution.
On 30 May, James Frost reported David Cohen’s testimony with a straight bat — CBA’s claims as fact. Cohen was chief general counsel at the time of the CBA purchase. Everything that CBA did in this affair would have had his imprimatur. He, rather than the seeming thickhead CEO Ian Narev, was the top banana.
On 30 May, Patrick Durkin reported on Commission hearings, where appeared CBA Bankwest hotelier victims Brendan Stanford (Portland, NSW) and Michael Doherty (Hobart). The CBA arranged corrupt devaluations of their properties (without the borrowers’ knowledge), with the subsequent unacceptable loan to valuation ratios providing the means to default and foreclosure, and with the properties subsequently sold under value.
Durkin reports this corrupt process as raising
... questions about the bank's callous behaviour but doesn't necessarily prove it did anything illegal or wrong.…
But the problem confronting Hayne is that [CBA’s chief credit officer Peter] Clark denied the bank's re-valuation changed the outcome — the Hobart pub was ultimately sold for just $8.1 million and the bank suffered a $38 million loss. Doherty and Stanford genuinely believe their businesses could be saved but the numbers just didn't stack-up.
Tough titties, but that’s life.
On 31 May James Thomson continues the same line.
'CBA has been largely painted as being justified in cleaning up the huge mess left by the overly optimistic business lending spree undertaken by Bankwest's former owner, now defunct British bank HBOS.'
Justified by David Cohen that is.
'What CBA found was that the quality of many loans was much worse than the Bankwest book showed. The security behind the loans was also worth 15 per cent to 20 per cent less than anticipated.'
That’s because the CBA devalued said security, courtesy of compliant valuers.
That's not to say this process was without serious flaws. Was CBA too harsh in the way it conducted the reassessments? Yes. Did CBA communicate these changes poorly? Definitely …
… Cohen agreed that the bank had not done enough to work with the pub owners to seek a way out of their predicament, and seemed intent on selling the business. He also agreed there was a human cost in these sort of cases.
"In this case the lack of discussion with the borrower, the lack of explanation about why a sale was the only option, I think that was not reasonable," he said.
On the contrary, a sale wasn’t the only option. And crocodile tears from Cohen. Does Cohen intend to make amends because 'the bank had not done enough'? Sickening.
In line with the much gentler tone of this small business round of commission hearings, Cohen's grilling by counsel assisting Michael Hodge, QC, was calm and measured.
And given the commission's early decision not to examine the various conspiracy theories around CBA's Bankwest deal — most prominently that it impaired a number of loans to try to force down the eventual price it paid for the business — there were no really uncomfortable questions to be answered.
Which sums it up. Commission back room staff and the Counsel Assisting had pre-determined that there would be a “much gentler tone”, that the grilling would be “calm and measured”, and that were “no really uncomfortable questions to be answered”.
Why? The Fin journos aren’t asking.
On 4 June, Patrick reports that Shine Lawyers are declining to abandon a class action on behalf of Bankwest victims.
Says Patrick, incredulous:
'A law firm is refusing to abandon a class action lawsuit against the CBA over BankWest despite evidence in the royal commission that commentators failed to uncover compelling evidence of wrongdoing.'
For “despite evidence” read “despite claims”. There is plenty of evidence of wrongdoing.
Patrick reports Shine Lawyers as saying:
"We are confident of success …They were acting contrary to the terms [set] with BankWest. When you unilaterally change the terms then we would say that that amounts to unconscionable terms."
Exactly.
Bizarrely, 5 June, the Fin publishes an opinion piece by Dr Craig Emerson, sometime Labor Government Minister. The article is titled “Not every failure is the banks' fault”.
Emerson was Small Business Minister during and after the GFC. He uses this article to demonstrate his then resilience in the face of “populist” demands from embattled franchisees for strengthening of the Franchising Code of Conduct.
I have been a long time and rare public advocate for small business, with myriad submissions to relevant Parliamentary inquiries. I have written about the comprehensive structural subordination of small business in a 2004 Working Paper and in a 2011 article in the Journal of Australian Political Economy.
In 2012, I wrote a piece on the small business portfolio being presided over by ministers who did nothing for small business, including Craig Emerson. I thought at the time that Emerson was representing big business and franchisor interests.
As a trained economist, Emerson would have learned nothing about the abuse of power in the marketplace (I speak from experience). But economics is a field where one wears one’s ignorance with pride. He should never have been given the Small Business portfolio, and small business got nothing but heartache out of him.
Now here is Emerson lecturing us again on how the victims are responsible for their own failure, this time in the banking sphere. Emerson evidently declines to inform himself regarding the lender/borrower relationship, but chooses to advertise his ignorance and prejudice in a national daily.
By contrast, some AFR reporting is straight down the line. James Eyers has to his credit some articles on the Rory O’Brien Bankwest foreclosure that are detached and atypically detailed — notably 5 May 2014 and 29 April 2018. Eyers also gave publicity to ASBFEO Ombudsman Kate Carnell, 6 June, who has expressed strong dissatisfaction with the Royal Commission’s unsatisfactory treatment of the Bankwest foreclosures and of small business victims in general.
The AFR’s Sally Patten has given a decent account of the dysfunctional and dangerous cultures that prevail in the banking sector, 5 June 2018. And so on.
Can the CBA have a dysfunctional culture, which repetitively produces corrupt outcomes in the cases of Storm Financial, Commonwealth Financial Planning, Comminsure, Dollarmite accounts, money laundering and so on, but yet which is overridden by clear-headed rationality and integrity when it comes to dealing with inherited Bankwest borrowers?
Is it a matter of good cop, bad cop at the Fin? Do the journos talk to each other?
Recall when Fairfax sacked Sydney Morning Herald journo Paddy Manning five years ago, regarding which I penned a piece on this site. Manning was dismayed at the gutting of the SMH business pages, with management intention that readers would be pushed towards the AFR. Manning claimed that the SMH business pages were more independent than the coverage at the AFR. He was right (although the subsequent sacking of Michael West highlights that no business reporting is safe from powerful lobby group pressure).
Paddy Manning: the Fairfax watchdog eats one of its own http://t.co/OJqWl3zCDi via @conversationedu
— mishaketch (@mishaketch) April 10, 2013
For inexplicable reasons, it appears that most people in white collar jobs feel the obligation to expose themselves to the AFR. Society-wide, it is an enormous collective waste of precious energy and an exercise in mis-education.
There has always been fine journalists who have written for the AFR since its creation in 1951. But the hoi polloi and social justice has always been sacrificed to the gods of “economic rationalism” and the big end of town (who are incompatible masters, by the way).
In particular, finance has been a sacred cow, with the sector’s faults perennially minimised. By chance, I recently came across cuttings from early 2001. Labor was proposing a mild “social charter” on the banks (due to rising fees, a decade of branch closures, and so on). The AFR went hysterical.
Par for the course, and symptomatic of the backdrop to the present disgraceful coverage of the Royal Commission, whose necessity the paper decried.
Well what do you know! The Fin has had a surge in digital readership figures, as reported 9 June.
Here’s the icing on the cake:
'… digital traffic and subscriber growth has been boosted by intense reader interest in stories related to the royal commission into banking and finance sector misconduct …'
Fake news travels fast.
The Fin lectures us on caveat emptor. What an irony. It is imperative that its hapless readers take heed of its instructions.
Dr Evan Jones is a retired political economist.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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Congratulations to all these AFR blokes winning journalism prizes funded by banks such as Citi and Westpac. pic.twitter.com/VCWrKjPKQq
— Stephen Mayne (@MayneReport) May 18, 2018
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