4 Corners -Bankwest Programme 9/4/12

[cu@thetop]

Only caught this last night (after Dexter and some Arrested Development) and saw half of it but it was an interesting programme on how Bankwest put some people to the wall too eagerly when they hit a "small default" or valuations were issued that didn't scrub up and upset LVR ratios.

When I was a locum (2007) I saw a small business owner with 4 IPs have his loan called in by Bankwest when there was no default (the refinance was less then a year old) and he almost lost everything.

I suppose it is interesting and as one person put it- the bank makes a deal- the deal is "bad" (ie the bank wants to get out of the loan due to GFC so orders a re valuation as a trigger for a default) so the bank plays its position to default the borrower and terminate the agreement.

Anyone have a story to tell?

 

[Ausprop]

I know st george sent a heap a developers to the wall in similar circumstances.

 

[tobe]

Where's dazz??

a bunch of half baked hippies who didnt read their loan contracts or have contingency plans in place. Were only looking at the upside and didnt think lenders ever used those 'fine print' clauses to call in contracts.

in reality in commercial finance, these clauses are used all the time. Books are monitored for risk and those not meeting the right profile are tapped on the shoulder. I thought the receivers comments were the most interesting. Did these developers expect to pay the lenders a share of the profits if it turned out the banks were struggling with the payments, or the lending environment changed?

 

[sanj]

luke saraceni a half baked hippy?

 

[Aaron_C]

Did these developers expect to pay the lenders a share of the profits if it turned out the banks were struggling with the payments, or the lending environment changed?

No of course not which is why the banks lend via debt, not equity. Risk vs return, equity vs debt, same old story.

 

[Terry_w]

You can watch the show online
http://www.abc.net.au/4corners/stories/2012/04/05/3471045.htm

Interesting

 

[Deena]

It was a very interesting program.

So the banks commonly do this with commercial loans do they. Do they do it to it to residential loans as well, or do they only commonly do that when people default?

 

[Aaron_C]

So the banks commonly do this with commercial loans do they. Do they do it to it to residential loans as well, or do they only commonly do that when people default?

Usually commercial loans because of the larger size of the loans and the higher volatility of commercial property, particularly property developments.

 

[Player]

An abridged print version gives the gist of the happenings with class action brewing:

http://www.propertyobserver.com.au/...8c616-April_11_20124_10_2012&utm_medium=email

 

[Rolf Latham]

welcome to the REAL world..............

When u talk with a client and explain the risk of annual review etc, its all hunky dory................and they are happy to proceed because often these products have lower interest rates than term loans with annual reviews.......

Many many commercial situations we can avoid that risk with the right loan product and structure.

Once you get over a certain size, or are very much cahflow dependent from the security, or have a specialised security, then you need to think really hard.

ta
rolf

 

[Bigtone]

Where's dazz??

a bunch of half baked hippies who didnt read their loan contracts or have contingency plans in place. Were only looking at the upside and didnt think lenders ever used those 'fine print' clauses to call in contracts.

in reality in commercial finance, these clauses are used all the time. Books are monitored for risk and those not meeting the right profile are tapped on the shoulder. I thought the receivers comments were the most interesting. Did these developers expect to pay the lenders a share of the profits if it turned out the banks were struggling with the payments, or the lending environment changed?

can't agree with you on this one Tobe, good business's get destroyed because some faceless back room bank analyst who has no idea how to run a business decides "too much risk in motor mechanics this month" so every loan in the industry is called in and people that have made every payment and meet the terms of the loan agreement perfectly can be wiped out especially if this view is shared by other similar idiots at other banks. They will say the valuations have dropped but in reality the only reason they dropped is because they interfered with the market and called in the loans, just trying to justify there jobs.

It is an absolute joke how people can be wiped out with no real explanations on the whim of faceless morons with no accountability and no grasp of reality.

If you are missing payments or have done something else wrong fair enough but for no other reason than "we changed the rules" is very harsh indeed.

 

[Deena]

Thanks for the explanation Aaron.

 

[cu@thetop]

welcome to the REAL world..............

When u talk with a client and explain the risk of annual review etc, its all hunky dory................and they are happy to proceed because often these products have lower interest rates than term loans with annual reviews.......

rolf

Yes, but when the annual review is at the hands of a valuer who is subject to the whim of his/her masters and writes what they (the banks) want to become a self fulfilling prophecy (your property is worth less, can meet new LVR, then appoint receivers, firesale of property and guess what- it really now is worth less) then I don't think this is pure contract in the sense that one party can effectively change the terms (through its proxy the valuer) of the deal.

I'm ok with the bank moving on an arrears default- but not so much on them moving on a bank initiated LVR comfort zone breach where there is no other default.

 

[tobe]

can't agree with you on this one Tobe, good business's get destroyed because some faceless back room bank analyst who has no idea how to run a business decides "too much risk in motor mechanics this month" so every loan in the industry is called in and people that have made every payment and meet the terms of the loan agreement perfectly can be wiped out especially if this view is shared by other similar idiots at other banks. They will say the valuations have dropped but in reality the only reason they dropped is because they interfered with the market and called in the loans, just trying to justify there jobs.

It is an absolute joke how people can be wiped out with no real explanations on the whim of faceless morons with no accountability and no grasp of reality.

If you are missing payments or have done something else wrong fair enough but for no other reason than "we changed the rules" is very harsh indeed.

Im not saying its good or bad, just that this is what happens.

Another 'choke' technique is rather than call the loan on the LVR is to switch the loan to P&I, or choke off the other facilities provided to the business such as LOC's, credit card limits etc that business owners use to smooth cashflow. You'll find businesses radically changed if the loan terms mean you now have to invest a whole wack of profit into principal repayment, and find more expensive short term debt to cover cashflow issues. business is usually sold or wound up within a year or two.

As rolf has said, there are other ways to structure business finance to protect your interests. things such as debtor financing rather than LOC secured against resi property, long term P&I loans rather than loans annually reviewable etc etc.

trouble is, these options are usually a tad more expensive, or might involve more than one lender, so people choose to get all their finance from the one bank, at a nice low rate, and choose to believe their commercial loan will be governed by the 'conventions' usually honoured in residential lending. ie, if they keep up with the payments, the bank will be happy.

I dont hold out much hope for the test case. There might be some merit to it if it was residential customers bankwest pulled their funding on, but these were all commercial deals.

 

[Jonril]

I think I am a bit cold hearted, but the way I saw it the program was a big whinge on the CBA.

The story as I understood it went.

HBOS (scotish bank) was bank rolling bankwest and when HBOS exploded due to GFC it off loaded bankwest at first opportunity to CBA.

CBA picked up Bankwest and went through with the razor gang cutting out the fat.

The perth developer that was building Bankwest head office bet on the wrong horse and threw good money after bad (apparently in good faith) when CBA picked up the tab they didn't like what they saw and killed the project with T&C's. (lawyers will make lots of money argueing the finer details apparently)

The other stories all seemed to be lack of DD. couple that bought a hotel with cardboard boxes for beds and a dog kennel in the main residence, then had a whinge that the orginal bankwest bank val was bogus?

Big bank bashfest, almost TT or A current affair worthy journalism.

 

[Rolf Latham]

If you are missing payments or have done something else wrong fair enough but for no other reason than "we changed the rules" is very harsh indeed.

Ethics and morality have little place in unregulated commercial banking............. hard enough to get a lender to be ethically sensitive in the regulated space, let alone the comm area.

The memoranda of mortgage and loan conditions are thus constructed that you can be placed into default at the lenders request.................. most folks dont understand that

ta
rolf

 

[Bigtone]

Ethics and morality have little place in unregulated commercial banking............. hard enough to get a lender to be ethically sensitive in the regulated space, let alone the comm area.

The memoranda of mortgage and loan conditions are thus constructed that you can be placed into default at the lenders request.................. most folks dont understand that

ta
rolf

i understand it Rolf , i just don't agree with it.

seems the govt has over regulated where not required and ignored areas where help may have been needed!

 

[Rolf Latham]

i understand it Rolf , i just don't agree with it.

seems the govt has over regulated where not required and ignored areas where help may have been needed!

Hiya

I dont agree with it in general for a second either !

We need to be very careful here thougn that BWA ( CBA whatever) dont get singled out here.

I have direct personal client experience of other lenders pulling this stuff, not liking something and crunching down so hard that we are + 3 mill one quarter in Net asset value to - 1 mill the next due to being shut down : (

ta
rolf

 

[Bird Dog]

Anyone have a story to tell?

It's not commercial but...

I can't comment too much as the case is still being played out but my mother lost her house when Bankwest foreclosed on her 4 months ago.

She unfortunately suffered what you might call the "perfect storm" with the GFC.
After loosing his job, her husband took 2 years to find work (as he was over 55) and when he finally did secure employment, was soon after diagnosed with a terminal illness and was unable to work again.
She then lost her business as her clients (baby boomer's superannuation) all dried up and was forced to take a significant decrease in earnings whilst looking after her sick husband and his mother.
The house was on the market on and off for over three years however it's buyers were the very same people who lost their super during the GFC and so it's value dropped over 35%. The challenge of course was that even at a heavily reduced sell price, there are still no buyers in that market.

She has documented the entire process and has been advised they may well have a case due to inappropriate banking practices so we'll see how it all pans out.

The moral of the story...
Don't ever think the banks just limit their exposure in commercial people.. They are in business (like everyone) to make money and when that money is threatened, they will do whatever it takes to ensure it's kept in their hands.

Cheers

B.D

 

[Terry_w]

It's not commercial but...

I can't comment too much as the case is still being played out but my mother lost her house when Bankwest foreclosed on her 4 months ago.

She unfortunately suffered what you might call the "perfect storm" with the GFC.
After loosing his job, her husband took 2 years to find work (as he was over 55) and when he finally did secure employment, was soon after diagnosed with a terminal illness and was unable to work again.
She then lost her business as her clients (baby boomer's superannuation) all dried up and was forced to take a significant decrease in earnings whilst looking after her sick husband and his mother.
The house was on the market on and off for over three years however it's buyers were the very same people who lost their super during the GFC and so it's value dropped over 35%. The challenge of course was that even at a heavily reduced sell price, there are still no buyers in that market.

She has documented the entire process and has been advised they may well have a case due to inappropriate banking practices so we'll see how it all pans out.

The moral of the story...
Don't ever think the banks just limit their exposure in commercial people.. They are in business (like everyone) to make money and when that money is threatened, they will do whatever it takes to ensure it's kept in their hands.

Cheers

B.D

Surely this is a different situation as your mother would have been behind on her loan.

What the 4 Corners story was about was the bank changing their policies and forcing people to repay their loans because the bank no longer wanted to have retirement property as security.