In May 2020, I published a lengthy dossier titled ‘The Sins of Westpac’, available here and here. Bank Reform Now’s Peter Brandson intervened with Westpac with respect to several cases summarised in my dossier. Brandson received a response from Westpac, via Carolyn McCann (‘Customer and Corporate Relations’) on 11 June, which read:
(This article is 8300 words long)
I Killing the messenger
‘I want to let you know that Adrian [Ahern] and I have personally reviewed all matters you have sent to us. Our role is to be impartial, and to review the facts as they stand. Where we have done something that isn’t right we will fix it. Our stance is to err on the side of the customer. However, in the cases you have brought to us, what you and Dr Jones are being told by some of the people you represent is not factual.
‘We discussed the cases of Mr Hayes and Mr Uebergang when we met last year in Batemans Bay. We provided a detailed summary [Brandson denies this] setting out that what was being said by these customers did not meet the facts in each case.
‘Briefly, in relation to Mr Hayes, there is no basis to his allegations. In particular, his joint venture primarily went into liquidation because he failed to account to the joint venture for a large GST refund which was to be used, once received, to reduce the debt owed to the bank. His joint venture partner took action against him, not the Bank.
‘For Mr Uebergang, thank you for the book [My Politicised Worstbank Tragedy 1987 to 2020] which I have read. There is no basis to his allegations. …
‘We have discussed today and don’t plan to reopen either case.’
Westpac had earlier sent Colin Uebergang and Patrick Hayes separately documents titled ‘Summary of core issues regarding …’, denying their longstanding claims. These documents are unsigned and undated, meaning that whoever compiled them, in conjunction with Head Office, knows that they stink.
Westpac opens its Uebergang ‘Summary’ by claiming that ‘in 1991/92 Colin’s businesses were in a financially challenging position’. This statement, rarely, is correct. Uebergang admits to two failings – that he trusted bankers and that the over-the-top interest rates of the late 1980s wouldn’t last. The self-taught Uebergang wasn’t to know that the over-educated monetary authorities were out of their depth, having succumbed to a mob mentality.
II The 1980s background
The context is instructive.
Bank prime lending rate
Those diabolical interest rates during the 1980s were the product of a long process of monetary policy being moved from a process heavily reliant on quantitative controls to one centred on ‘market-conforming’ principles – that is the ‘price signals’ of interest rates. In particular, ‘Statutory Reserve Deposits’ (SRDs) were established during World War II, then after the War were employed for counter-cyclical purposes. For example, if the authorities wanted to dampen total bank lending they would raise the SRD quantum. Moreover, under the bank-centred regulatory regime prevailing since World War II, trading banks were losing market share in financial intermediation. The authorities, and naturally the banks themselves, wanted the banks returned to centre stage, which comes to pass in the 1980s.
But what do the banks do with their new freedoms and new responsibilities? They unleash in an orgy of unsavoury lending (c/f Trevor Sykes’ 1994 The Bold Riders, Ch.1), against which the authorities went into hiding. Rather, the authorities The Sins of Westpac and abolished the mechanism of SRDs and the associated ‘liquid assets and government securities’ ratio (LGS) requirement, because the rates paid for SRD deposits were trivial and the LGS requirement (employed both for counter-cyclical and prudential purposes) were too constricting for bank lending ambitions. During the 1980s, the public interest was quickly subordinated to the banking sector’s profits. Thus in the boom 1980s the authorities were forced to rely purely on ‘price signals’ (i.e. interest rates) to control lending.
This process not only did not work, but it hurt the wrong people. More, those culpable were absolved of all culpability. David Morgan, Deputy Secretary of Treasury and head man overseeing this policy disaster, not only avoided blame but jumped ship to the floundering and corrupt Westpac in 1990.
To my knowledge, no Reserve Bank official or Treasury/Finance bureaucrat has ever acknowledged that the ‘price signals’ approach of reliance on interest rates failed the test. (At the current time, with negative real cash rates, the failure to boost the economy as opposed to the previous failure to restrain the economy is transparent, but the heads of the experts remain in the sand.)
Westpac (henceforth W) was an integral part of the 1980s lending orgy (see my ‘The Sins of Westpac’ article). Trevor Sykes notes the reflections of Henry Garrett, W’s chief general manager, group credit policy and control (Bold Riders, p13). Behind a 3- week 1983 course on ‘relationship management’, “the driving force was marketing thrust rather than credit analysis”. Garrett continued: “We had very material rewards for business written that gave very little focus on the quality of the credit”. This mentality was the product of the gung-ho CEO Bob White’s introduction of ‘management by objectives’, with bonuses linked to individual selling ‘performance’.
Sykes continues (p.18): “Even after the share market crash [October 1987], managing director Stuart Fowler [who succeeded Bob White in 1988] was eager for Westpac to be the first bank in Australia to chalk up a $1 billion profit”. Assets had to be dramatically expanded to reach the goal. Thus W had a rights issue in 1988 which raised $743 million. W also revalued its Martin Place head office from $20 million to $1.1 billion (!). A gearing ratio of 20 to 1 opened the door to a near $40 billion in extra loans, which W almost achieved with an increase in assets from 1988 to 1990 of $70.3 billion to $108.6 billion.
As an example of W’s loss of sense, a decent chunk of W’s largesse went to Abe Goldberg’s Linter group which, by 1990, had loans from myriad banks (unknown to each other) totalling many multiples of Lintner company assets. Sykes again (p.19):
‘Thus, after Linter’s collapse, Westpac discovered that not only did it have an exposure, but so did its subsidiaries AGC, Bill Acceptance Corp and Partnership Pacific. The group’s total exposure was not $100 million, as Westpac had first thought, but $150 million.’
Genius! Thus Colin Uebergang became road kill in the train wreck that was W in 1990. Goldberg’s Linter was an empty shell and Goldberg flew the coop to his native Poland in 1990 (to die comfortably of old age in 2016). Uebergang, and no doubt comparable others, with tangible assets is made to pay for the debacle whose origins lay elsewhere.
III The Uebergang story revisited
Colin Uebergang’s farming background is briefly outlined in my ‘The Sins of Westpac’. It is desirable to read or re-read this summary before proceeding to the supplementary material below.
Uebergang expanded his operations in the late 1980s, with Westpac’ Brisbane State Administration support. Unlike those of the 1980s buccaneers, Uebergang’s operations (organic wheat, tea-tree oil) and the latter’s planned expansion were well-devised structures.
In the straitened circumstances of record interest rates and the ensuing recession, Uebergang’s expansion into tea tree planning (several million trees) and related product development and infrastructure provision had resulted in significant debt. In this context, with the bank itself in serious trouble from profligate lending (as above), W Head Office decided that Uebergang’s businesses would be targeted for default and foreclosure – and without Uebergang’s knowledge. As early as June 1990, examination of the bank’s security over Uebergang’s assets exposed the fact that security was seriously inadequate, hampering a ready default process (Queensland Legal Office Recoveries Unit memo, 2 June 1990). W’s Brisbane administration was blamed for the neglect.
With support for Uebergang from the Queensland Farmers’ Federation, Westpac was forced to pay for a report on Uebergang’s operations, Australian Tea Tree Estates P/L. The W ‘Summary of Core Issues’ delivered to Uebergang by W in May 2019, in denying fault on W’s part, claims: “The Poolman report indicated that the group could not meet its debts at that time”. That statement is to cherry pick and distort Poolman. The December 1991 report emphasised that the tea tree endeavour, well planned and executed to date, was clearly viable and recommended they be allowed to trade out.
W didn’t trust the Poolman report’s protections and brought in KPMG, which initially discounted the projections, but subsequently admitted that Poolman had it essentially right (Brisbane Loans Management to receiver, 18 February 1992). It is pertinent that the Poolman P/L consultancy had acquired expertise in the specifics of the tea tree industry (high cost, linked to R&D demands requiring good capitalisation and skilled management, but also potentially highly profitable with escalating product prices). A Queensland government-enforced arbitration meeting in March 1992 resulted in W formally accepting the Poolman report approach.
The Poolman report notes:
‘… ATTE has successfully established a 54 hectare plantation which is, without question, the most agronomically and technically advanced plantation within the industry. … ATTE is now at a state where its’ (sic) agronomic skills are established and the plantation is sustainable as well as profitable. The company is uniquely positioned to capitalise on several years research and development which has culminated in the existing operations.’
Uebergang had been planning, as early as 1987, to partially float his operations after embedding their viability – this with support of the Brisbane office. When W Head Office put in a receiver in December 1991, it also pushed back the capital raising process which subsequently was designated to be completed by Tuesday 30 June 1992. Uebergang’s parties worked to this schedule, with the underwriter Commercial Investments Australia Ltd appointed to handle the float, and with Uebergang planning to retain 50% of ATTE ownership. Ernst & Young were also contracted to assist in the capital raising, with E&Y consultants confident of success (E&Y’s John Arthur Watter affidavit, 8 July 1993).
In addition, a sizeable acreage of land adjacent to the plantation in the Mullumbimby area had to be subdivided from the tea tree acreage proper. This area included a valuable coastal strip and other pockets (an operational gravel quarry, a small block subdivision west of the Pacific Highway). Sale of this separated land would complement the capital raising in combining to dramatically reduce (or even eliminate?) Uebergang’s debt to W. Uebergang claims that the anticipated return on this land sale was over $5m.
Uebergang’s then accountant Robert Mulkearns was present at a Brisbane meeting where Commercial Investments’ principal Richard Lynch was given assurance by W that “the title deeds would be processed by the titles office and ready for transfer on the 30 June 1992 in exchange to the Bank for $2,100,000 arising from the capital raising” (affidavit, 8 July 1993). W notified the Uebergang parties on Thursday 25 June (considerate! normally they leave notification till the Friday at 4.50pm!) to admit that the title deeds would not be transferred to schedule. W also failed to pay the surveyor who was appointed to prepare the subdivision plans. It was a wilful and corrupt act of subversion. The subdivision did not take place to schedule and the capital raising was aborted. Commercial Investments had by that time received $1.8 million in commitments.
Poolmans P/L’ principal Peter Poolman wrote a letter to Uebergang, 18 July 1993, which deserves extensive quotation:
‘I can only express my significant disappointment that the capital raising was not successful, particularly in the circumstances where the funds were committed but had to be returned. It is extraordinary that both Westpac and Lindsay Dickson [receiver employed by KPMG Peat Marwick] appear to have disregarded the need to attend to a matter which would have created funds for the retirement of A.T.T.E.’s debt. …
‘If we reflect on the past extensive discussions and negotiations relating to your indebtedness to Westpac the immediate conclusion is that the whole matter is a farse (sic). Poolmans Pty Limited was officially brought into the discussions with Westpac as an independent and experience (sic) group which was acceptable to the client, the Bank and the Queensland Farmers Federation. We were extensively praised for the quality of our work which was submitted by Mr Ian Searle [Westpac Brisbane], in its entirety, to the State credit committee of the Bank.
‘Our advice, at all times, was that Westpac’s preferred position was to trade-on provided the budgets were sustainable. History has proven the Poolmans’ projections as accurate despite the appalling cost and lack of effectiveness of the receivership.’
Poolman demanded answers from the bank and the receiver to 7 salient questions, of which three reproduced here are representative:
‘2) Why was the Receiver appointed when the Bank had advised the client and the consultants that the preferred option was to trade-on?
‘3) Why was a Receiver appointed who had zero agricultural skills?
[EJ: W confirms the Poolman assessment of Dickson. Quoting from Brisbane Loans Management memo to State Manager Credit & Lending, 27 October 1992:
‘We are speaking of two highly specialised rural operations. Mr Dickson has no special expertise in either of those areas, nor would any other accountant in this State. … Mr Uebergang is highly recognised as a top producer of both organic wheat and tea tree oil. The organic wheat certification attaches to the partnership operating the property and is not necessarily automatically available to others.’]
‘7) The Receiver disputed the Poolmans’ projections in order to support his own appointment. When does Westpac finally stand up and admit that the Receiver was appointed in error?’
At the beginning of the installation of the KPMG receivership in December 1991, illegal because accompanied by no paperwork, there was much shuffling of personnel. The personnel confronted that W had inadequate security on the Uebergang properties. W threatened Uebergang in order to enhance its security, but initially without success. The illegal receivership continued in place, not least when both bank and receiver confronted how profitable were the wheat and tea tree operations, with several millions being sucked from Uebergang’s businesses. The tea tree operations were so viable that Dickson even ploughed some profits into enhancing its infrastructure. Dickson ultimately paid himself $520,000 and paid his solicitors almost $370,000. Did KPMG care about its reputation, or is the insolvency sector merely an untouchable racket, run in tandem with bank predation? The receivership was not formalised until 10 February 1994 (as a vehicle for foreclosure and sale of properties), with Uebergang being informed belatedly on 18 February 1994.
W whitewashed the ongoing theft by claiming that a defunct wheat crop lien was still operative, yet the crop lien had expired with the harvest in 1990 to which it was related. Even some W managers became concerned at the extent of Dickson’s extractions. W and Dickson illegally extended the 1990 crop lien to cover the 1992 crop. W and the receiver also arranged with wheat buyer Uncle Tobys and tea tree product buyer G. R. Davis to funnel sales revenue directly to W.
With Uebergang suing W in the Federal Court, W attempted to pre-empt this process by having Dickson and Uncle Tobys accuse Uebergang as knowingly contaminating a wheat crop and passing off in a sale in 1991 to Uncle Tobys on arranged terms as organic. This attempt began in late 1993, involving a conspiracy with the police after many meetings with the police by bank and receiver. However, the police ultimately found no evidence for this accusation Constable Christopher Lucht was questioned on two separate occasions at the Committal Hearing, notably by Uebergang’s barrister on 3rd April 1995, and admitted that no evidence of any contamination of wheat sold to Uncle Tobys had been found. Subsequently the police were pressed to have the charges changed to ‘pretense’ to defraud. Queensland Police later conveniently mislaid all relevant documentation in their possession, thus contributing to the longevity of the hearings against Uebergant. Ironically, W’s initiative occurred after Uebergang had been informed by one of his employees still working on the wheat operations that staff had been instructed by Dickson to load trucks with harvested non-organic wheat (1500 tonnes) for delivery to Uncle Tobys Victoria as organic wheat. Uebergang immediately informed the police, but that was to be the only meeting he had with them.
After an absurdly lengthy committal hearing (conveniently draining Uebergang’s team of resources), Uebergang was sent to trial. Committal Hearing Magistrate O’Donnell had dismissed 8 of the 11 charges laid against Uebergang, and District Court Judge Manus Boyce at trial dismissed 2 of the 3 remaining charges. Uebergang was found guilty on the orders of Boyce on one charge of having misled the Uncle Tobys’ purchasing representative in late 1991 regarding the status of his wheat crop then sold to Uncle Tobys. On this finding Uebergang was gaoled in late 1997
Let us return to Carolyn McCann’s response of 12 June 2020 to my original article, ‘The Sins of Westpac’, denying my claims therein. My counter-responses are interpolated within square brackets into the McCann text:
« The article states that in 1991 Westpac impaired Mr Uebergang’s profitable operations as “bad”.
Mr Uebergang’s operations were not profitable prior to the appointment of receivers in 1991. [Wrong. Uebergang’s operations had been highly profitable, but (as above) his substantial investment in tea tree development in the context of unrelentingly high interest rates, resulted at its peak in a debt of $6m. A partial float and sale of valuable land to offset this debt was planned and organised but scuttled by W.]
Mr Uebergang agreed to the appointment of receivers in return for further financial support. [Wrong. Uebergang strongly opposed the illegal imposition of a receiver in December 1991, who turned up in Uebergang’s office without notice. Powerless, Uebergang subsequently agreed to accommodate the receiver, in granting some demands, but on the understanding that W would return control to Uebergang’s companies – an understanding that was never honoured.]
Notwithstanding that further support, the business was not able to trade out of its difficulties. [Wrong. As above. W prevented the float, land sale and trade out.]
The article states that:
- there was a conspiracy of Westpac, the receiver and Uncle Tobys arranged in 1993 to have Mr Uebergang indicted on a trumped-up charge of claiming to Uncle Toby’s buyer that non-organic wheat was organic. [True]
- Mr Uebergang then had external financial backing, but Westpac was hoping to drain Mr Uebergang’s resources via the action in the criminal court. [True]
- Uncle Tobys was the sole litigant in the criminal proceedings, but Westpac was the driving force behind the litigation. [True]
Response: Westpac did not bring the criminal complaint, nor did Westpac conspire with Uncle Tobys and the receivers to have criminal charges laid against Mr Uebergang. The Queensland Police charged Mr Uebergang and his son with a number of counts of defrauding Uncle Tobys as a result of crop contamination. The Crown was the prosecutor, as in all criminal proceedings. The evidence that was adduced at the trial was that Mr Uebergang had contaminated the crop by using proscribed substances or had directed his employees to do the same in October 1990, before the appointment of the receivers. The Court of Appeal overturned the conviction based on the adequacy of evidence relating to a false representation being able to support the conviction and the direction given to the jury in this regard. It did not overturn the jury’s finding that Mr Uebergang had used proscribed substances on the crop.
[Wrong on all counts, save for an incomprehensible oblique reference to why the Appeal court overturned the conviction. Uncle Tobys was the front for Westpac and was paid off (albeit cheaply) by W for performing this service. W also bribed the witnesses, with assistance from Dickson, including a longstanding and previously loyal employee of Uebergang. No evidence was ever produced that supported the contamination accusation. Uebergang’s son was removed from the charges by the Committal Hearing Magistrate, the son merely involved in ownership but not in wheat farm operations. The Appeal judges (McPherson, Davies & Moynihan JJ, R v Uebergang, QCA 19, 27 February 1998) excoriated Trial Judge Boyce for his sloppiness with respect to the interpretation and directions to the jury regarding Uebergang’s communications with the Uncle Tobys’ representative. They found that the sole charge on which Uebergang was found guilty had no legs of itself. They also noted that the three charges brought to trial before Boyce were inextricably linked; given that the first two charges were dismissed at trial, the third charge should have been dismissed along with them. Uebergang had no case no answer.] »
A diary memo was written by W’s A. J. Chatteron, Chief General Management Australian Banking, 4 October 1991, copies to Brisbane Loans Management and General Manager Queensland. Chatterton notes therein:
‘Obviously Mr. Uebergang is known very widely within the wheat growing industry and has been a very successful farmer. … It is also concerning that we could be seen to have aided and abetted Mr. Uebergang into the unfortunate situation he how finds himself in.’
Chatterton notes that in the then straitened circumstances: “We are on occasion finding it to our advantage to forgo part of our debt or reducing interest rather than forcing a sale in depressed market situations and the Uebergang situation could be one of those where such action needs to be contemplated.” Evidently, the ultimate decision-makers in W, in cahoots with Brisbane management and the receiver, decided to ignore the considerations of this senior manager from Head Office.
IV The Hayes story revisited
The Patrick Hayes experience with Westpac is outlined in my ‘The Sins of Westpac’. One needs to read or re-read this summary before proceeding to the supplementary material below.
The key to the roping in of Patrick Hayes and his subsequent foreclosure by Westpac lies in two factors. One is the entrenchment within Westpac (Sydney, Brisbane, Gold Coast) of a pack of crooks, operating for mutual profit with a pack of crooks outside Westpac. Two is the loan made on 13 November 2006 by the crooks inside to the crooks outside.
As noted in my ‘Sins’ document, Westpac’s ‘Summary of Core Issues regarding Thomas Patrick Hayes has this to say:
‘Mr Hayes has alleged that an unsecured loan was made on 13 November 2006 to Knight Property Investments [a vehicle of Mario Girardo] for $6.8m. Whilst the bank cannot provide details of facilities provided to other customers this allegation is not correct.’
That claim (‘this allegation is not correct’) is a blatant lie.
The loan was initiated in Sydney, where members of the cabal located at Westpac Head Office went unchecked. The loan was intended for purchase of a Gold Coast apartment (‘Platinum’), corruptly overvalued at $8.5 million. The loan was originally mooted at $5.1 million, an arbitrary but seemingly comfortable 60% of the fictional $8.5 million valuation. But the Sydney link then had a better idea. Claim that the property is a commercial property, which allows a loan figure to the extent of 80% of the valuation. Thus the property was documented as a block of units, which it wasn’t. The scammers also claimed that Platinum was earning $10,000 a month in rental income, whereas it was a single vacant unit. Someone in the Brisbane office, which ultimately processed the loan, thought the property was a single unit, but didn’t pursue the matter. Thus the cabal scammed an extra $1.7 million out of Westpac, which flowed through to money laundering and paying off various unsavoury characters.
As ‘security’ for the loan, Westpac Sydney sent (10 November 2006) to Westpac Brisbane a table listing Girardo’s assets and liabilities. The table lists $39.78 million in assets (‘not including 25 mil development realization’) and $1.14 million in liabilities, with income at roughly $231,000 a month. This table was presumably concocted out of thin air.
Three members of the cabal that had organised the November 2006 loan and then the Hayes stitch up later got a payoff in being given part ownership of a beachfront unit on Albatross Ave Gold Coast, purchased in 2007 (also with fraudulently obtained funds).
The 13 November 2006 three month bill became due on 13 February 2007. There was no money in the borrower’s till. On the same day, Hayes is being offered from Brisbane $10.5 million as long as he takes on Girardo as partner. Hayes has no choice but to accept the ‘offer’, as he had bills to pay and the previously arranged financing had been simultaneously cancelled by the same cabal members. Hayes’ assets are then used immediately to cover Girardo’s insolvency.
Hayes signed the loan documents at Westpac Brisbane. The signing was presided over by Westpac loan manager Shane Draper (name changed, see my ‘The Sins of Westpac’) in the office of Peter Dickens (name changed), not present. It was only much later during litigation that Hayes saw Dickens in court (lying, as did other Westpac staff). Hayes realised that he had previously seen Dickens in the company of Girardo in 2007 at a Gold Coast golf course where Hayes was compelled to arrange a meeting with Girardo. Girardo was known for generously entertaining his bank friends. Dickens was evidently part of the cabal. Draper was sacked after Girardo was bankrupted (he is now back at the NAB, from which he had been previously sacked), whereas Dickens remains ensconced at Westpac Brisbane.
As for the curious case of the GST, let us repeat the June 2020 message from Carolyn McCann:
‘Briefly, in relation to Mr Hayes, there is no basis to his allegations. In particular, his joint venture primarily went into liquidation because he failed to account to the joint venture for a large GST refund which was to be used, once received, to reduce the debt owed to the bank.’
And let us reproduce the relevant text from Westpac’s May 2019 ‘Summary of Core Issues Regarding Thomas Patrick Hayes’:
‘It was a term of the Funk Road Facility that there was to be a debt reduction of $872,000 upon receipt of a GST refund from the ATO on or by 31 May 2007, whichever was the earlier. The debt reduction was not made and Mr Hayes caused Funk Road to pay that amount to entities associated with him. This is a key issue and it appears is the core reason why Funk Road was placed into liquidation and receivership. …
‘The failure by Mr Hayes to make the debt reduction as required following receipt of the GST refund in May 2007 caused the Funk Road Facility to go into default. The default was not therefore the result of any conduct by Mr Girardo but rather Mr Hayes’ own conduct for failing to account for the GST refund to Westpac and transferring the GST refund to other entities associated with him without the bank’s approval or Mr Girardo’s approval.’
This is all just so much palaver.
The then convention was that a property purchase would attract GST, but that sum would be refunded by the ATO three months later at first BAS (in this case, in April 2007). The cabal members organising the loan determined that Westpac would pay the GST and that Girardo and Hayes would repay the GST money in three months.
It was a side concession to Hayes in putting Girardo in his company that Girardo would pay Hayes the almost $600,000 that Hayes had already incurred in expenses in securing the site. Given that Girardo lacked the funds, Girardo’s Westpac friends then determined that Girardo could keep the ATO GST refund and pay Hayes out of that. There were other simultaneous rorts to keep the Girardo loan afloat, not relevant here. In the end, Hayes received $570,000, and then Hayes and Girardo split the remaining $300,000.
This arrangement was formally sealed when Hayes and Girardo signed new guarantees with Westpac in mid-2007. It was acknowledged in the court process that this signed variation meant that the requirement to repay the GST sum had been vitiated.
Basically, the cabal members were constantly manoeuvring to manipulate the Girardo accounts because the latter were permanently in deficit. Hayes paid the ultimate personal price for these shenanigans because of his coincidental search for finance from a supposedly reputable institution.
Westpac had a significant problem with the cabal that was dedicated to Girardo’s interests rather than to Westpac’s interest. The bank dealt with the problem by hiding it and to attempt to escape public embarrassment. Sometime CEO Gail Kelly, Board Chairman Lindsay Maxsted and several senior executives all denied that Westpac had lost money from the Girardo saga. Westpac had during this period declined to report Girardo and his banking accomplices to the Queensland police. Belatedly, Westpac Customer Advocate Adrian Ahern admitted in a meeting with Patrick Hayes in late April 2019, witnesses from sides present, that Westpac had lost money on Girardo. Ahern is the only Westpac employee to publicly make such an acknowledgement. Meanwhile, McCann continues to front for the lies.
V Westpac’s pathologically flawed and amoral culture
Westpac’s predecessor institution, the Bank of New South Wales (established in 1817), had a social cachet. It was a formidable political force during the 1930s under General Manager Alfred Davidson, who cultivated an intellectual milieu amongst his senior staff and built a library to match. Any remnants of that culture were buried with the onset of financial deregulation and the Bank’s acquisition of the Commercial Bank of Australia in 1982. With the name change to Westpac came the change in culture, as outlined briefly in my ‘The Sins of Westpac’ and in my introduction here above.
That Westpac became committed to its asocial dysfunctionality, rather than confronting its 1980s sins (foreign currency loans, mad cap lending to spivs) and expressing contrition and compensating victims, is succinctly displayed in the material generated by the 1991 Martin Parliamentary Banking Inquiry with respect to foreign currency loans (FCLs).
This affair merits revisiting. It highlights that the unsavoury culture forged during the devil-may-care 1980s has never been resiled from. It had become set by 1991 and it is now entrenched. The flirtation with ‘Corporate Social Responsibility’ under David Morgan in the 1990s is shown to be fairy floss.
Dr Noel Purcell and others appeared before members of the Standing Committee on Finance and Public Administration presiding over the banking inquiry on 22 May 1991. Their testimony is transcribed in the Official Hansard Report pp.2064-2123. Purcell was then Head of External Relations (a peculiar role as corporate hack for a highly qualified statistician) and in that capacity led the testimony. It is a masterly display of dissembling and lies.
Purcell has it that the roughly 900 FCLs that Westpac sold to customers were trivial in number, sold to only sophisticated businesspeople and only to those people who asked for them. (How does this relate to the discovered appraisal of Albert Look, Manager International Business Queensland, in which Look’s ‘performance against objectives’ were achieved in stellar fashion. One of Look’s objectives was to ‘expand marketing sphere’ – i.e. to flog FCLs – to major Queensland provincial cities. This glowing appraisal was for the year ending September 1985 – that is, during and after the collapse of the Australian dollar. Look was the classic success stories of the Bob White-introduced marketing culture.)
To continue. For Purcell, the risks were purportedly known to the borrower, because present in the loan document signed. The FCL product was not innately dysfunctional, claiming two judicial edicts in support (of which more below). Nobody but nobody, including the experts, had any idea that the Australian Dollar could fall so far against leading currencies (in which the FCLs were denominated, especially the Swiss franc) in 1985. Discovered bank documents highlighting internal concern were being ‘taken out of context’. The bank was not profiting via tax evasion in routing the FCLs through low-tax Singapore. The bank took no extra points from processing customer FCL currency changes. (This in spite of the disclosure of the ‘Westpac Letters’ in February 1991, highlighting that Westpac’s ‘upmarket’ subsidiary Partnership Pacific leveraged profits of its managed FCLs.) Finally, once the calamity had arisen, with borrowers finding that their AUD-denominated debt had exceeded the bank’s security, Purcell claims that the bank went out of its way to assist them, even at cost to the bank. And why would Westpac want to pursue customers in expensive litigation, claimed Purcell, rather than sorting things out by means more amenable to parties concerned?
In contemporaneous Martin inquiry material, one finds a contrary story of the same events, indeed a parallel universe. The four submissions outlined below were all made to the Committee in December 1990, yet Purcell speaks as if these submissions and their content countering his claims did not exist.
John McLennan was an ex-Westpac employee (resigning in 1986) who, through his dissent and activism, incurred Westpac’s wrath. Within the bank, McLennan was not employed directly in the FCL matter, but he subsequently obtained a significant quantity of internal bank documentation on the issue. He also spearheaded the creation of the Foreign Currency Borrowers Association to give victims some collective clout.
McLennan’s submission to the Martin Inquiry (No.36), dated 7 December 1990, is reproduced in the bound submissions Volume 5. McLennan highlights that management of the Bank of NSW (indeed bank management in general) during the 1970s was thoroughly conversant with the phenomenon of foreign exchange risk. In my own research drawing on Reserve Bank archives, the Exchange Control Department (in consultation with other RBA Departments) engaged with anxious paternalistic concern in constant exchanges with each bank over all dimensions of its foreign currency exposures. McLennan also highlights that some senior Westpac management were seriously concerned about the potential dangers for non-corporate clientele before the 1985 AUD debacle but their concerns were marginalised within the bank.
Given the known substantial risk of the FCL product, McLennan points to ‘What a prudent banker should have done’. On the contrary – rather than prudence in Westpac processes, it was simply asset-based lending (i.e. taking of customer assets as security). There was no explicit investigation with the potential borrower of the borrower’s business capacity to sustain substantial currency-related losses, or to establish ‘stop-loss’ mechanisms to limit the borrower’s exposure. Without such, one has a facility innately dysfunctional (my expression). For McLennan: “In this case neither the bank nor the borrower had control over the loan”. Quite. McLennan’s summation is comparable to that expressed in an internal minute of Westpac’s F. A. Ward, General Manager Credit Policy & Control, 17 January 1986: “Neither the bank nor the borrower has control of liabilities. … there is an urgent need to bring these assets under competent management”. McLennan buttresses his evaluation of the facility by citing Justice Andrew Rogers. Rogers presided over at least two FCL litigations (Lloyd v Citicorp and Mehta v Commonwealth Bank), he had the rare distinction amongst judges of having buried himself in internal bank documents, and he contributed a scholarly article on the issue (cited by McLennan and attached as annexure to his submission) in the Journal of Banking and Finance Law and Practice in the (timely) September 1990 issue.
McLennan notes that Westpac’s Singapore branch was used as a tax avoidance mechanism, and the bank did take ‘secret commissions’ on customer exchange switches. More, rather than assisting the borrowers in their distress, the banks [including Westpac] “implemented various methods to insulate themselves against legal action”. McLennan notes: “I have attended many of the cases heard before the court and frankly, I am disgusted at the tactics used by the Bank’s [i.e. Westpac] counsel”. The banks resisted discovery of relevant bank documents to the extent tolerated by the courts and were given considerable latitude by the latter.
There is also a submission to the Martin Inquiry from one Gerhard Moser, dated 12 December 1990 (No.60, bound submissions Volume 8). Swiss-born Moser was a highly experienced foreign exchange dealer and was in the thick of it. With the debacle in full swing, by mid-1986 Westpac faced an increasing number of borrowers whose asset security had now been fully extinguished (Moser claims the loan exposure of such borrowers to have been roughly $194 million), and thus any further depreciation of the AUD would be for the account of the bank. Westpac subsequently established a Risk Management Unit. Moser found himself Manager of this RMU from July 1987 to November 1989. Mosser claims he was sacked by Westpac in November 1989 because some with influence resented Moser’s ongoing attempts to get Westpac to operate within the RBA’s mandated limits to the open positions in the AUD held overnight, and within the Westpac Board’s comparable guidelines.
Moser supports McLennan’s contention that myriad internal documents disclose thorough appreciation amongst senior management of the high risk associated with FCLs. Moser notes that FCLs were highly profitable for the banks, the profit adding up from the tax advantage of formally routing FCLs through Singapore, the leveraging of the imposed 10 per cent Interest Withholding Tax (whose ultimate resting place remains a mystery), the bypassing of the RBA’s low interest Statutory Reserve Deposit requirements, the taking of secret commissions and of opposite positions on borrower currency switches, and so on.
Purcell claims that with foreign merchant banks offering FCLs in the early 1980s, the Australian trading banks had no alternative but to follow suit. Yet Moser highlights that “The amount of loans so written was very limited and restricted to a very select number of clients with the necessary sophistication and understanding to manage such a facility”. More, by contrast, the Australian banks targeted small businesses (including small-scale property developers) and farmers. These were indubitably, as Moser emphasises contra Purcell, unsophisticated borrowers. Quoting Moser at length:
‘The typical swiss franc borrower is somebody who quite often left school early because times were tough. From this start, without any parents money, they would build up an enterprise or a farm that is in a position to raise millions. We are here talking about the true entrepreneurs of this country. There are some 3,000 of them [i.e. FCL borrowers, an under-estimate] out there. Their lives have been put on hold for the last four to five years due to the ballooning of their debt that came about simply because they followed their bankers advise (sic) at a time when people still believed you could trust your banker.’
The outcome was inevitable: “In summary, the customer in many cases lost control of his destiny”.
If Westpac had borrower interests to the forefront and disdained expensive litigation, as Purcell claimed, why did it appeal the Trial court judgments for the FCL borrowers Chiarabaglio (July 1989) and Spice (September 1989). (Westpac lost on both appeals.) Why did it appeal the Trial Court judgment for the FCL borrower Potts (December 1990)? More profoundly, why did Westpac seek to overturn the Potts judgment by engaging in judge shopping and achieving an utterly corrupt Appeal judgment in its favour in April 1992? Westpac knew it was on a losing streak, so it plumbed the depths in corruption. This story is outlined in my March 2014 ‘Westpac, the Foreign Currency Loans Scandal and the de Jersey Factor’. So much for customer support.
The submissions of McLennan and Moser to the Martin Inquiry are complemented by brief submissions (Nos.48 & 49, also December 1990) from two Westpac FCL borrowers – Tim & Jerry Tyrell and Charles Spice. Both are also printed in the bound submissions Volume 8.
Regarding the Tyrrells (a pre-purchase inspection service company):
‘At the time of taking the loans, we expressed considerable reservations about the risk of exchange rate fluctuations. The bank stated to us that any risk of exchange rate fluctuations was more than compensated by the interest rate savings. Further, they presented evidence which purported to prove this statement. Prior to entering the loan, the serious nature of the risk was never raised by the bank.’
The Tyrrells borrowed $3 million. Quoting their submission: “Capital losses including interest since repayment exceeded $6 million with economic losses from lost opportunity and forced sales of assets exceeding $15 million”. To the time of their submission they had also incurred over $500,000 in legal fees and uncounted hours in personal resources lost in pursuit of redress.
Having won his litigation, Charles Spice in his submission could be more philosophical. Spice was told that there was ‘no catch’ in borrowing off-shore, yet notes that, his loan manager was forced to admit in court that “he had in fact warned certain of his customers with whom he was on friendly terms not to borrow off-shore”.
Spice is emphatic on the significance and cost of the borrower’s misplaced ‘trust’ in the banking fraternity: “Traditionally most of us have had a blind trust, not just in the wisdom, but in the integrity of our local bank manager. In many cases the prime reason for those unwise borrowings has been the keen encouragement given by the bank”.
Let us return to the nature of the FCL facility, essentially toxic and not fit for purpose. Westpac’s Purcell confidently asserts (Martin Inquiry transcript p.2067-68) that two learned judges (as they are respectfully designated inhouse) decided otherwise. With the borrowers purportedly being sophisticated and knowing the risks, Westpac was in the clear, with no formal responsibility whatsoever. This was simply a customer-oriented bank catering to what customers wanted. Given how much hangs on the legitimacy or otherwise of these two judicial opinions highlighted by Purcell, they demand clarification.
Rogers J calls a spade a spade in Mehta v CBA (NSWSC 50023 of 1989, 27 June 1990), at 57:
‘Had the bank told Dr. Mehta the full facts the borrowing would not have been undertaken. I have no hesitation in accepting that proposition. Nobody in his right mind, after being told that the possible loss was unlimited, that the necessary implementation of safeguards would be limited in their effect and would require continuous attention which the bank refused to provide, would contemplate making the borrowing. Attractive as the borrowing may have been, the attraction could not survive a full and complete explanation.’
The Rogers judgment was overturned on appeal (Samuels/Meagher/Waddell JJ, NSWCA, 40407 of 1990, 28 March 1991), and with it the presumed toxicity of the facility. The CBA and other banks drew great comfort from the Mehta Appeal judgment.
Roderick Meagher J opined:
‘A foreign currency loan is largely a gamble; consequently, it would be unattractive to the timid and the prudent. Nonetheless, there are perfectly rational people who are prepared to gamble; and it is notorious that many borrowers did enter into such transactions at the time without suffering any damage, some of whom actually made a profit. All the experts agreed that it was reasonable for an informed borrower to enter into such transactions. One cannot but have an uneasy feeling that a dogmatic view that such loans are necessarily irrational will lead to the imposition of liability on lenders where justice does not require it.’
In a 2005 article I wrote on the subject (here) I label this statement injudicious, indeed verging on scandalous. Which it is. Meagher’s memory enjoys an elevated status within the NSW judiciary, but this intervention is sorely ill-founded. There are three glaring failures in this brief opinion.
One. People engage in speculative activity in which the speculation and the prospect of profit is the central object of the activity. Risk is an integral and known ingredient of the activity, even if many players are prone to discount the odds of adverse outcomes. By contrast, recipients of foreign currency loans were businesspeople whose preoccupation was their business. They were seeking functional finance as a vehicle towards that prime purpose. If they could get lower interest rates, other things equal, as advertised, well and good. They had no skills in foreign exchange, no interest, and no resources to commit to the very serious task of monitoring foreign currency markets. The ‘perfectly rational people who are prepared to gamble’ (surely an oxymoron) is another grouping entirely.
Two. The composition of FCL borrowers, and even a rough estimate of their numbers, has never been tabulated. The range of experience of borrowers, even the typical experience, is unknown. No borrower who profited has ever come forward and been accorded publicity. Meagher’s claim that ‘it is notorious’ that many borrowers entered the arrangement without suffering any damage or even made a profit has no empirical basis whatsoever.
Three. Did any experts arise in accounting for the foreign currency loan debacle? The odd individual, such as academic Tom Valentine (who Purcell acknowledges was on a Westpac retainer), made a bid for such status but fell short of attaining it. There were no experts. Meagher’s claim that ‘All the experts agreed …’ also has no empirical basis whatsoever.
Purcell also raised a comparable statement declaring the FCL’s integrity in the David Securities / Rahme v CBA appeal, FCA 148, 10 May 1990. Lockhart/Beaumont/Gummow JJ claim jointly (at 73):
‘But it is clear that the rule as to things dangerous in themselves can have no direct application here. Nor, in our view, can the rule as to things inherently dangerous provide an appropriate analogy in the case of a borrowing in a foreign currency. It may be accepted that there will always be a risk of an adverse movement in the rate of exchange. But it does not follow that a foreign loan transaction is something "dangerous", let alone "dangerous in itself", or anything analogous to such a special thing. Speaking generally, all that can be said is that it is possible that such a transaction may result in some economic gain in certain events or in some economic loss if other contingencies occur. A foreign borrowing is not itself dangerous merely because opportunities for profit, or loss, may exist.’
This claim is as equally fatuous as Meagher’s. Context is everything (as per Meagher’s first failure, above), but context has been obliterated. The context (the character of the borrowers) leads a rational analyst to deduce that the foreign currency loan is indeed ‘dangerous in itself’.
One is led logically to invert Meagher’s final sentence above, to repat: “One cannot but have an uneasy feeling that a dogmatic view that such loans are necessarily irrational will lead to the imposition of liability on lenders where justice does not require it”. Rather, justice requires the imposition of liability on the source of the problem – the banks that pushed this innately toxic facility on businesses for which it was a dangerously inappropriate means of finance. In this matter, common sense – strangely marginalised in the law – demands a hearing. Common sense produces the self-evident inference. The dogmatism attributed by Meagher to the victims and their few supporters is to be credited to Meagher’s account. It is staggering to me as a legal layperson what tripe can be uttered by learned people of the bench without such maestros suffering a commensurate dent in their reputation.
By contrast, Andrew Rogers’ inference on the essential nature of the foreign currency loan in the context of a finance sector deregulated and globally integrated, was and remains brutally accurate.
I have engaged in this lengthy diversion to highlight that Westpac, via its External Relations Manager Noel Purcell, was in a total state of denial with respect to its then flawed and amoral culture. This is at precisely the time (May 1991) that Westpac has initiated fraudulently foreclosing on Colin Uebergang and criminally conspiring to send him to prison.
VI Plus ça change
Thirty years later, nothing has changed. Save that Westpac has added to its fold an expensive Customer Relations apparatus, whose sole purpose, it appears, is to deny acknowledgement and compensation for past malpractice on its part while pretending otherwise.
The word for this last forty years of Westpac’s operations is mendacity. The greater tragedy is that this label applies to the Australian banking sector in general, for which Westpac’s recent history is merely a variation on a common theme. The Hayne Royal Commission has come and gone. White collar crime has been formally addressed and penalties increased, but no bank executives have been indicted for crimes committed under their watch. The culture of mendacity remains essentially entrenched, courtesy of regulatory and political indifference.
AUSTRAC is the only body to have attempted to break the mould, with the significant fines levied against the CBA (June 2018) and then Westpac (September 2020) for indifference regarding money laundering controls. Westpac responded with its ASX Release (‘Westpac releases findings into AUSTRAC statement of claim issues’) on 4 June 2020. In it, new Westpac chairman John Macfarlane noted:
‘It’s been my experience since joining the Bank that Westpac deeply regrets this matter. Indeed, recognising the seriousness of the issues raised by AUSTRAC, the former CEO stepped down and the former Chairman brought forward his retirement. We are all committed to fixing these issues so they don’t happen again.’
To which is attached a 7-page ‘Overview of Westpac’s AML/CTF Compliance Failures Related to AUSTRAC’s Statement of Claim’. It is an abject acknowledgement of a succession of administrative failures, albeit in the conventional ‘crocodile tears’ language to which we have become accustomed that leaves one little assured that it was written by real human beings with a soul. Regarding change at the top, CEOs and Board chairmen come and go across the sector with great regularity, with no substantive impact whatsoever on the machine beneath.
And to which is also attached a 36-page ‘strictly confidential’ report, Board Governance of AML/CTF Obligations at Westpac: the Advisory Panel Review. Board governance? What a novel idea! Part of the round robin of reviews – the APRA review of the CBA, the Chester review of ASIC, the Samuel review of APRA, etc. that ultimately go nowhere. All in the ‘seen to be doing something’ category.
What one needs for the banking sector is a genuine revolution in banking administration and regulation, embedded in a culture producing practices subordinated to the public interest. It isn’t going to happen.