The Commonwealth Bank of Australia (CBA) recently reported a record profit of $10.2 billion. In an environment where many people are doing it tough, the CBA’s CEO Matt Comyn claimed that ‘It is not a choice between profitability or doing a good job for customers; you can do both’.
Loyal CBA customers lamenting the closure of multiple branches within miles of their residences will be amused. However, the issue goes beyond branch closures. There are a lot of aggrieved CBA borrowers out there, known to CBA management but invisible to the general public, not least thanks to current media indifference.
Myriad layers lie behind the victimisation of borrowers in particular. The rot started soon after financial deregulation took off in the early 1980s. The publicly owned CBA joined the melee of banks seeking market share in a volatile marketplace. Professionalism and integrity went out the door, to be replaced by money-making opportunism. Potential borrowers, ignorant of the cultural transformation, had misplaced trust in bank staff to their cost.
The new atmosphere was most pronounced with the CBA joining with Westpac and the ANZ to flog toxic loans denominated in foreign currencies to ill-informed small businesses, farmers and small-time property developers. It then compounded its original sin by denying culpability against litigating borrowers.
The privatisation of the CBA between 1991 and 1996 compounded its indifference to ethics. The champion of the new culture, David Murray, CEO from 1992, closed many branches and retrenched many employees.
The revamped CBA also set about dismantling the Commonwealth Development Bank (CDB), the specialist small business/farmer lender. Labour-intensive processes meant that CDB revenues were below desired ‘commercial’ rates of return. CDB borrowers had their terms unilaterally altered, with sometimes dire effects.
The high point of the CBA’s brutality was when it defaulted approximately 1000 Bankwest commercial borrowers after acquiring Bankwest in late 2008. The CBA claims that the decline of post-GFC property values made these borrowers non-viable. Evidence from select borrowers, however, readily highlights that the bank’s senior management was dissembling. The large-scale takedown was a large-scale scam.
Over the decades since the 1980s, the CBA has continued to nurture conditions of entrapment for some individual borrowers in which the bank defaults and forecloses on the customer. Perennially, this practice results in the customer not merely losing their business and their home (taken as security), but having their life destroyed in the process.
Asset-based lending, which is essentially predatory, is a key vehicle for these entrapments. Sometimes manufactured figures inflating customer assets and revenues, unseen by borrowers, facilitate the dangerous loans’ approval.
Like borrowers, customers of CBA subsidiaries Commonwealth Financial Planning and Comminsure were treated derisorily; both cases were extensively covered by the then Fairfax press. The CBA also financially underpinned Storm Financial’s unethical business model and then unilaterally, unconscionably, defaulted the Storm Financial operation.
In short, the CBA has no problem with unconscionable conduct. But it operates (as does the banking sector in general) with impunity. The ever-expanding Code of Banking Practice is a sham. The Australian Securities and Investments Commission is complicit with bank malpractice. Ditto the Australian Financial Complaints Authority, the finance-sector-funded ombudsman. The federal Treasury, the ultimate financial regulator, is complicit in this complicity. The Australian Prudential Regulatory Authority cares only for banking sector stability—that is, banking profitability.
The courts generally seal bank victims’ fates. The judiciary, whose formal education is steeped in the law of contract, consistently fails to inform itself on the profound asymmetry of the credit relation. The lender, de facto, has the power of life or death over the borrower.
However, it appears that the CBA has enjoyed a special layer of political protection. In the late 1980s and early 1990s, it was rightly attracting adverse exposure in parliament from Democrat Senator Paul McLean. The Labor government, in the process of privatising the CBA, preferred instead to shoot the messenger. The 1991 Martin Banking inquiry, driven in large part to head off McLean at the pass, was a whitewash—especially with respect to the then raging foreign currency loan scandal.
The CBA’s large-scale foreclosure of Bankwest borrowers is a saga still under wraps, however. Two Parliamentary inquiries were established, but to no effect. The 2012 Senate Economics References Committee Inquiry into the Post-GFC Banking Sector was neutered from inception by the dilution of its terms of reference. By contrast, the 2015–16 Parliamentary Joint Committee Impairment of Customer Loans Inquiry asked the right questions. The report emphasised the CBA’s brutal treatment of foreclosed borrowers, not least in its dubious devaluation of borrower assets, but, inconsistently, saw nothing systematic in the bank’s widespread foreclosures.
No changes of substance took place following either report.
The 2017–19 Hayne Banking Royal Commission hearings (Session 3) cemented the impasse. The defence of the CBA’s actions by Commission personnel was so crude that one could not help suspecting a set-up job in the bank’s favour.
In a speech in May 2019, Comyn claimed that the CBA’s goals were motivated by ‘the founding principles of the bank’ established in 1911. Said Comyn, ‘This has always been our purpose—improving the well-being of our customers and communities we serve’. This is a preposterous claim.
A curious sleight of hand by the then Labor government facilitated the ongoing deception. Following its privatisation, the bank retained its original name. Up to this point, no private entity had been permitted to trade under the label ‘Commonwealth’—witness the contemporaneous privatisation of the Commonwealth Serum Laboratories, forced to become CSL. This loaded name retention handed an enormous goodwill freebie to the privatised bank.
The last thing the profit-driven Commonwealth Bank cares about is any commitment to the commonweal.
NB. The Sydney Morning Herald and the Canberra Times declined interest in publishing a shorter version of this article.
John Hinkson, Dec 2022
A strong case can be made that for half a generation Australia has been living a fantasy. Borrowing to finance nuclear submarines is only the latest example.