CORFIELD, Mr Ian, Chief Executive, Bankwest Business, Bankwest

DE LUCA, Mr Robert, Managing Director, Bankwest

TINDAL, Ms Suzanne Maree, Chief Executive, Strategy and Reputation, Bankwest

[13:29]

CHAIR: Welcome to representatives from Bankwest. I invite you to make an opening submission.

Mr De Luca : Bankwest welcomes this opportunity to address the committee and to put forward our side of the story on a number of matters put to the inquiry. Bankwest practices in its dealings and relationships with customers have been, and continue to be, appropriate. Bankwest has 1.1 million customers across the country and this number continues to grow with knowledge that customers have been unfortunately affected by the GFC. We are sympathetic to their circumstances and Bankwest has sought to support these customers, often over very lengthy periods of time. It is in our interests to support viable, sustainable businesses during periods of genuine hardship. Bankwest is owned by the CBA Group and has continued to operate under its own ADI licence management and governance structure following CBA's acquisition.

There has been some speculation regarding the sale process that CBA and HBOS went through in 2008 and whether it encouraged Bankwest to call in loans to obtain a better price for the CBA. As you heard yesterday from Mr David Cohen from CBA, this is simply not correct. The sale agreement did not influence the way in which Bankwest dealt with its customers. There was no benefit either to Bankwest or to CBA in defaulting customers or causing losses to customers. In fact, any losses that arose were borne by Bankwest.

There have been comments to the inquiry that valuations were systematically decreased. This is incorrect. It makes no sense that valuations or sales prices would be purposely lowered. These assets are relied on to meet the bank's debt and selling these assets for a lower price would often result in a greater loss for the bank. When selling assets, insolvency practitioners have a legal obligation to achieve fair market value. Values were commissioned by the bank to provide a level of independence in the process. It is covered in some submissions by industry bodies; valuers abide with a significant level of professional obligations.

There have also been suggestions that the bank dealt with customers on a global basis. This is untrue. The bank worked with customers individually through any financial difficulty they were experiencing. The Bankwest sale period coincided with the worst global economic downturn in 80 years. Unfortunately, some of our customers with industries and sectors were the most impacted. The majority of customers who have made submissions relate to property investment and development transactions. Most of the transactions of these customers were entered into between 2005 and 2007 and then encountered problems between 2008 and 2010. Their situation mirrors the broader property investment and development environment that went through an increase in activity followed by a contraction in the cycle during these periods.

It is important to note that during this period insolvencies for Bankwest customers have been in line with our overall market share. The situation of individual customers who have lodged submissions is unfortunate. We in no would way look to downplay the impact of financial difficulty. All of us here would prefer these people did not run into difficulties. Unfortunately, as we know, sometimes difficulties do arise and it is in the bank's interests to assist customers if that occurs. We maintain that the cause of the difficulties arose from a combination of economic factors, not through any inappropriate action of the bank. The global financial crisis was an unseen and unwelcome event for banks and customers alike. In cases where clients were impacted we worked closely with them to try and improve their position.

There has been a relatively small group of customers who have aired grievances and represent less than 0.01 per cent of our 1.1 million customers. Our overall customer satisfaction levels are high and have continued to rise. Our customer numbers also continue to grow. I am proud to lead an organisation that employs more than 4,000 people across Australia, caters to the needs of over a million customers and invests time and resources into many community organisations that aim to improve the lives of many Australians. I now welcome any questions you have.

CHAIR: Thank you very much for your opening statement.

Senator WILLIAMS: Mr De Luca, in your opening statement you said that the way your customers have been treated has been appropriate. Is that correct?

Mr De Luca : Correct.

Senator WILLIAMS: I have a mountain of complaints that have come to my office, hence my pursuit of this Senate inquiry. Yesterday morning Mr Sean Butler spoke. Taylor Wooding were the receivers sent in. There was no communication with him. He was sacked from his job with a wife and four dependent children. He would not agree with you nor would a first witness this morning, Mr Geoffrey Reiher, who worked with Mr Paul French as his business partner at a hotel in Cobar. Nor would many other of your customers agree with that statement that your treatment of your customers has been appropriate.

Why did Bankwest send the receivers into businesses such as those of Mr Paul French and Mr Geoffrey Reiher who had never had an overdraft, who had never missed a payment, who had worked hard? Why did the receiver just roll up on a door? Was it because of the LVR loan?

Mr De Luca : Firstly, there are a number of reasons why a bank could get to a position of appointment of a receiver. In most of these cases and the submissions you have received, we have worked with customers over a long period of time. I do not want to get into the individual customers. I am happy to discuss those in camera. But just to touch on the French one that you raised, the mine closure occurred in late 2008 and the bank provided a number of concessions to the customer over the next 2½ years. As to converting principal interest payments to interest only payments, the customer also had debts.

Mr De Luca : They commenced their loan on interest only payments for the first 12 months.

Mr De Luca : I am not sure if it started with interest.

Mr Corfield : The new loan started as a principal with interest and then we moved it to interest only for 12 months because obviously the business was in difficulty. I suppose I just echo what Rob said which is it is absolutely not in the interest of the bank to be calling in the receivers. That is why we do it in such a small percentage of cases. It is absolutely in our interests, and of course in the interests of the customer, to try and make sure we can get to a point where we trade our way out of any difficulties.

Senator WILLIAMS: Well, Mr Reiher this morning clearly stated that the financial sins he had committed were being a couple of days late on payments. He said they had kept their payments up. They reduced their principal from $1.3 million down to $1.25 or $1.26 million. They almost had poker machine loans paid off. That would have freed up another $50,000 a year and his hotel was sold for around $750,000, box and dice. I find that concerning unless he is not telling the truth. He says he never missed a payment. Is he telling the truth? Except for this couple of days late payments?

Mr De Luca : Again, our preference would be to discuss any matters in camera.

Senator WILLIAMS: Okay.

CHAIR: What we might do is focus on some general stuff initially and then move into camera at the end of the session when we could do some more specific questioning.

Senator WILLIAMS: I take you to valuations. Obviously, LVRs are a big thing. Do you think the valuation industry should be at arm's length and totally separate from the bank and they do their job and you do your job?

Mr De Luca : I would say that it is important that the banks work with valuers, it is an important obviously to the broader industry.

Senator WILLIAMS: That is the political answer. We have the valuation industry here and the banking industry there. When you employ a valuer to do their job, should they be done at arm's length distance from you and then they just give the report?

Mr De Luca : That is the way it operates.

Senator WILLIAMS: That is the way it operates? Then why have I seen an email where one of your bank managers is suggesting to the valuer to devalue the assets by 20 per cent? Isn't that interference?

Mr De Luca : We would be happy to have a discussion about that email, assuming that it is the same email that we have a copy of.

Senator WILLIAMS: I hope there are not many more.

Mr De Luca : We firstly would like to see the email that you have.

Senator WILLIAMS: I do not have it with me. It is in my computer .

Mr Corfield : Senator, in that instance, I think you probably have seen half an email. The reality of that situation—which is absolutely common practice across all of the banks—is that in all cases we try and sensitise valuations to understand what would happen if the value of certain assets changes and what the impact on the customer would be. I think when you read the rest of that email you will see that the bank colleague is trying to understand what would happen in those sensitised environments. It is just helping us to understand what the impact would be on the customer. It is not us directing the valuer to reduce a valuation by 20 per cent which we would never do.

Senator WILLIAMS: Thanks, Mr Corfield, but it does say, 'I have spoken to the valuer again Friday to gauge his opinion and I suggested a reduction of say 20 per cent on existing valuation and he was of the opinion that this was a bit bullish and maybe 10 to 15 per cent is the nearer mark.' There is still a suggestion from your bank manager about valuation.

Mr De Luca : As the bank officer was doing analysis on further funding for the client. So it is all about sensitising.

Senator WILLIAMS: We are not a court here. We are not judges. You judge us at election time actually. You are the judges. We will certainly look in our recommendations. I will be looking at this closely when this committee reports to the parliament on 31 October on that very issue of what regulations are in place in relation to valuers.

CHAIR: On the valuations, I note in your report you say:

The process and standards for valuation includes:

Detailed formal written instructions are issued to Bankwest preferred valuers to undertake evaluation reports …

You comment that there is independence of valuers in the banking system. I know particularly a business property can be valued in certain different ways. But a valuer that is earning their money will look at all different aspects of what a value is worth. They can say if it is sold as a going concern, what it is worth and, if it is sold freehold or leasehold or whatever or as an incomplete development, what they think it is worth now and what it is worth complete. Given that they can work all of that out, why is it necessary—a value is a value—for a bank to provide detailed formal written instructions to the valuer? Why can't they just say, 'Here is the property. Can you go and tell us what you think it is worth in the current climate and if we take it on'?

Mr De Luca : Certain aspects of the instructions would be if there is actually DA approval to develop on the property. There are a number of aspects to the instructions.

Mr Corfield : Between ourselves and the client we would obviously agree on criteria because, as you say, there are a number of different ways to value something. We would agree how and what criteria we were going to apply but then, having issued those instructions, we would be absolutely arms-length with the valuer. It is for them to come up with what they feel the value is.

CHAIR: But the instructions would only go to the extent of, 'This is what we are proposing with the customer. Can you value in accord with what we have agreed with the customer.'

Mr De Luca : We do not provide the customer details.

CHAIR: But you also would not say, 'The customer is wanting to undertake a construction project but instead of valuing what it is going to be at the end can you value what it would be if there was a fire sale?'

Mr De Luca : There would be instructions there if there is a DA approval. The value would be provided with a DA approval, so for aspects that are already known.

CHAIR: Mr Corfield, you just said that you would discuss with the client evidence or submissions that we have received to this inquiry, so I will just finish up on evaluation.

Senator WILLIAMS: Take your time.

CHAIR: You said in discussion with a client. We have heard from a number of witnesses that action was taken against them following new valuations that were undertaken without any instructions to them. Is that evidence incorrect?

Mr Corfield : Throughout the course of any loan period there are a number of contracted dates at which we would undertake a further valuation because obviously over the period of time valuations change. That is in the contract with the customer up front so they understand that from the contractual documentation. But also obviously when customers unfortunately fall into difficulty at that point again we are taking a valuation of the business to understand what the value is at that moment.

CHAIR: So except for the contracted points of time or events or a customer clearly already being in difficulty, you would not undertake a valuation.

Mr Corfield : We would not unilaterally be deciding in a given week, let's do a valuation on this.

CHAIR: So you wouldn't sit down and say, 'Look, the GFC has happened. The value of hotels is suffering. We have some client that have hotels. Let's go and send a valuer in to have a look at that just to see what is happening with their valuer.'

Mr De Luca : As you know Mr Corfield stated, the terms and conditions provide us the ability to do a valuation update, let us say, on an annual or biannual basis, so at that point in time we may decide to do it earlier before the financial year finishes or after the financial year but within the terms and conditions.

CHAIR: On the basis of that, okay.

Senator WILLIAMS: A previous witness here today just before you, Mr De Luca, was a bloke by the name of Guy Goldrick. It was July 2008 when, strangely, the tap of finance was turned off. I want to take you back to your bank in July 2008. Obviously HBOS was in serious trouble; would you agree?

Mr De Luca : It was in trouble, yes.

Senator WILLIAMS: It went broke. I would call that serious trouble. Would you agree that they were in serious trouble?

Mr De Luca : Yes.

Senator WILLIAMS: They were funding your $17 billion worth of loans?

Mr De Luca : That sounds about right. Ian would—

Mr Corfield : That is right. I was actually in the bank at the time. Yes, that is right.

Senator WILLIAMS: In HBOS?

Mr Corfield : Yes.

Senator WILLIAMS: Living in Australia or England?

Mr Corfield : No, I was working for Bankwest at that point.

Senator WILLIAMS: Were you, Mr De Luca?

Mr De Luca : No, I was not.

Senator WILLIAMS: You are a new one on the block?

Mr De Luca : I am.

Senator WILLIAMS: My congratulations.

Mr De Luca : Thank you.

Senator WILLIAMS: You are obviously up to a challenge.

Mr De Luca : I certainly am.

Senator WILLIAMS: HBOS could not refund the $17 billion it had lent to Bankwest for your customers. They obviously did not send you a cheque once a year of $17 billion . It obviously came through as loans rolled over. Am I correct?

Mr Corfield : Essentially the balance sheet of Bankwest at that point was about 65 per cent self-funded from deposits within Australia. The rest of the balance sheet, the $17 billion, was funded through wholesale funding, which was secured by HBOS. So obviously at the point where HBOS got into difficulty, whilst that funding was not immediately threatened because most of that funding would have been longer dated, it did put HBOS under serious pressure. But the reason HBOS had to sell Bankwest was more about its difficulties in the UK than its position in Australia.

Senator WILLIAMS: It got into difficulty, and hence that trouble raising wholesale funds. During the July to December period of 2008, did you see a turning off of the tap as far as that $17 billion coming into your network in Australia? Or did it just happened on one day on 17 December 2008? I want to get a picture. Those funds must have been drying up as HBOS was in trouble and could not roll them over. When did that start affecting your book as far as having money to lend out?

Mr Corfield : HBOS, the parent, was obviously in difficulty and that presented a number of challenges for them. There was not a point in Australia when Bankwest were actually affected in the sense of saying, 'Let's stop lending,' or 'Let's do that within the business.' It was more about the fact that the parent was in difficulty and therefore it needed to find a buyer for Bankwest.

Senator WILLIAMS: Why did you cut off funding to projects like Mr Goldrick's? He was developing a property and needed $6 million or so to complete a $15 million project and you stalled him for seven months. He does not know whether he is coming or going. He does not know what is happening. There seems to be a lack of communication. He is in no man's land. When you agree to take on a job—and I view a bank's relationship with a customer as a partnership—because you think it is sound and secure, you lend them the money and when it is completed you get paid. They make their money and you are making money. It is a joint partnership. Why did you pull out of that partnership so early?

Mr Corfield : Mr Goldrick is not actually a customer of Bankwest and never has been. He is a broker of finance. I think the development that he is talking about, which was not directly his, was in a number of difficulties. When developments get into difficulties, there are debates between the bank and the customer as to whether or not it is better to put more money in to finish the development at that point. The reality of what was going on globally at that point was that all banks, because we were at the point where we entered the financial crisis, were looking at the sectors that they wanted to lend into. At that point in any cycle lending into development of property always starts to slope.

Senator WILLIAMS: I refer to your opening statement about how the insolvency practitioners, liquidators, administrators and receivers come under the Corporations Act. Section 420A is about selling assets off, doing their best to retain market value or close to market value. We had a witness earlier on today whose property was valued at $4 million that was sold for $635,000. After the sale it was revalued at $3.8 million. That appears to me not to be meeting market value.

Mr De Luca : I am not sure which client you are talking about or which submission you are referring to. But, in general terms, again, during the global financial crisis valuations fell south quite significantly across a number of areas. Therefore if the insolvency firm was only able to achieve that price for the asset that was the market value.

Senator WILLIAMS: Why would it be valued at $3.8 million after the sale? This was shortly after, not 50 years after.

Mr De Luca : Again, I am not sure which sale you are referring to.

Senator WILLIAMS: I have problems with section 420A that I have asked ASIC about in Senate estimates—what happens if someone breaches it? Of course, 'How long is a piece of string?' is the answer. Something I think the committee needs to look at is corporations regulations about fair and good efforts put in by the receivers to get fair value so that those people in trouble get as much as they can and the banks who are selling them on get as much as they can. You were saying receivers need to sell up new developments—they might be units or industrial buildings. Those buildings are sold they are sold with a GST component; correct?

Mr De Luca : Correct.

Senator WILLIAMS: Why has Bankwest been so reluctant, because the receivers were selling these joints up and giving you all the money after their fees, to hand over the GST component to the Australian Taxation Office?

Mr De Luca : I am not aware that we have been.

Senator WILLIAMS: Let me make you aware of it. Lauderdale Projects Pty Ltd and the Bank of Western Australia—the sale went through for $9 million. Bankwest agreed to the sale contract. There was $900,000 of GST. So the sale price was $9.9 million. The receiver gave Bankwest $9.9 million. If Lauderdale did not get the $900,000 they could not pay the Australian Taxation Office in their quarterly or monthly BAS. You held on to the money. You would not hand over that $900,000. So what happened? The parties—and Bankwest agreed to this—called in a bloke called Ron Merkel, a former judge. You agreed to abide by Mr Merkel's decision as an expert. It was not a mediation. Mr Merkel ruled these were the issues. 'Bankwest held a recent mortgage over the property. A dispute now exists between Bankwest and Lauderdale as to whether the GST amount is payable to Bankwest or to the Australian Taxation Office. Bankwest was required to discharge its mortgage over the property. Bankwest and Lauderdale have agreed to resolve this dispute.' He made a decision. He said, 'The amount payable to Bankwest is to enable Lauderdale to pay GST. Accordingly, the GST amount is required to be paid by the stakeholder to Lauderdale to enable it to meet its liability to the Australian tax office in respect of GST.' He gives court cases as examples. He said, 'The GST amount is properly to be regarded as an expense occasioned by the sale rather than as part of the purchase price payable to the bank by the sale.' He went on to say that, 'The special circumstances describe a clear intention on the part of the purchase of Bankwest and Lauderdale that the GST amount was to be paid to Lauderdale.' He went on to say that 'Bankwest as secured creditor under its mortgage and charges is not entitled to the GST amount in priority to the ATO as of date of completion of the sale or at any time thereafter and the payment of the GST amount to Bankwest without making provisions for the payment to the Australian Taxation Office of the GST due on the sale of the property will in the circumstances of the present matter be unlawful'. I put it to you that these receivers who have sold up so many of your customers have collected the GST component, and I believe you still have a lot of it to the tune of probably hundreds of millions of dollars. Why did that have to go on for a couple of years? Why did you have to get Justice Ron Merkel to hear this case? When you got that $9.9 million, you clearly knew that $900,000 was the GST component. Why would Bankwest not hand that over to the ATO?

Mr De Luca : I am not aware of that matter. I am happy to look into that one for you.

Senator WILLIAMS: You had better look deep because I am sure that there are going to be other people looking into it as well. This is the thing that this committee must do as a regulator—make clear regulations seeing that in the case of receivers selling up commercial properties that have the GST component that that component goes to the proper authority, which is the Australian Taxation Office, and is then handed on to the states. I am very concerned about this issue about why there was a legal fight. It was not in a court room but both parties agreed to abide by the decision made by Ron Merkel. He makes it quite clear in the matter that Bankwest retaining this money is unlawful. As I said, I think this has been going on in a widespread fashion.

Mr Corfield : We are obviously committed to meeting all of our obligations. In any receivership there are normally many creditors. Quite often it is complex to work through exactly what the position is, but—

Senator WILLIAMS: The GST component is very simple. It is not complex. You sold the property for $9 million; you received $9.9 million. You did not want to give up the $900,000 to the tax office. It has gone on for years until, finally, an independent expert has made a judgement. What I am saying to you is this: I believe the receivers have done this right through your network of selling these commercial properties up and I believe you are hanging onto a lot of GST components of those sales. I want to go through those sales, contracts and collections of money you have had to see if there is a GST component there because, if you hang on to the money, the ATO will go after the business the receiver has sold up and they will bankrupt it. They will lose out with the Australian Taxation Office while you retain the money. To me, that is very wrong and very un-Australian. I want you to go through that. No doubt there will be other people going through and checking this very issue. As regulators we need to be assured that this loophole is patched right over.

Mr De Luca : That is something we will obviously look into. It is not widespread. We have not got other—

Senator WILLIAMS: It is not widespread?

Mr De Luca : Not that we are aware of.

Senator WILLIAMS: Perhaps many of these receiverships have not been brought to your attention. When you first summon up a receivership they just take up their empty kitbag and walk off. They have nothing left. I am well aware of the insolvency practitioners industry. Talk about charges! As I often say, Ned Kelly should have been knighted compared to some of the charges they charge. This is an issue that needs to be addressed because I do not think the Australian Taxation Office would be impressed at all.

I want to take you on to another issue. I am going to ask you a frank question, Mr De Luca. You have many customers out there now that you are in negotiations with. One is Ken Brundell, who has a hotel in St George and another one. He bought the hotel in St George because your bank said manager, 'Buy it. We will lend you 100 per cent. We will just roll on and in three years time all will be rosy.' That is just one of many people I know who have taken their superannuation out and put it into this retirement fund. Can you give us a guarantee that those clients of yours who are meeting their interest payments will not have the plug pulled on them?

Mr De Luca : Firstly, there are a number of parts to a contractual obligation with a bank. Interest repayments are not the only covenant in a contractual obligation. It really does depend on the broader aspects of the relationship.

Senator WILLIAMS: What if they are meeting their interest and principal commitments? I was talking to a lady last night. You chased her for the loan and you lent her a lot of money. She pays you $30,000 a month—$6,000 in principal and $24,000 in interest. But she and her husband are living in limbo, not knowing whether tomorrow you are going to send a receiver. They have $100,000 in the bank and they meet their payments all the time, but the stress it puts on this lady, her husband and her children is humungous. I often say that you deal with the figures and we deal with the people. What I am looking for is a commitment that, if people can make their way, you will please be gentle with them, give them some breathing space and help them through it instead of what has happened in some of the cases we have heard about.

Mr De Luca : As I said, it is in our interests to work with our customers and it is not actually in our interests to default on customers and lose money.

Senator WILLIAMS: But why would you sell up developments that are not completed? If I were to go into the car-manufacturing industry and I made a car, if I got it half-built and it did not have a motor or a transmission I would not attempt to sell it. I would not make much money. It would be 80c a kilo for scrap metal. Why have we heard of so many cases where you have pulled the funding out of development projects which have not been completed. I know the ANZ did one last week with a fellow. As a member of parliament I was the chair then. They had said, 'Yes, we'll put a million in.' It was: why did you pull out of so many projects that were not completed?

Mr De Luca : Firstly, let me refer to my opening statement. The number of submissions we have got here is 0.01 per cent of our customer base, so it is important to put that in context. Secondly, it is in our interests for the customers to be viable and to be able to repay their debts. The last action we take is to appoint receivers. It means we have worked through a process with a customer and we have got to a position there that actually the best outcome is for the receivers to be appointed and work through the outcome.

Mr Corfield : It is probably worth adding, Senator, as well that there are of course a number of development customers where we have finished the development with those customers in order to make sure, as you say, that we can realise the value for the bank and for the customer.

Senator WILLIAMS: I am pleased to hear that.

Mr Corfield : However, the reality is equally, unfortunately, that in some of these development cases putting in further money will not realise any extra value either for the customer or for the bank and unfortunately the reality of what happened in the GFC was that values fell very significantly, especially in regional development centres.

Senator WILLIAMS: I come from a regional area and I have been there all my life. You were concerned about the LVRs when those assets were reduced in value? So that was your concern?

Mr Corfield : Yes.

Senator WILLIAMS: Hence you took various actions. Mr Corfield, what if we go into global financial crisis No. 2, which sadly I think is highly likely given the conditions in Europe, Japan and America et cetera? Let us say the price of real estate reduces 20 per cent around Australia, especially in places like Sydney. If you are going to go on LVRs you are going to have a hell of a lot of places to sell up in a couple of years' time if that global financial crisis No. 2 hits. Will you then look at your LVRs or whether those families can afford to pay their home loans? This is going to be a problem if we have another reduction in the value of assets.

Mr Corfield : It is absolutely not in our interests to be calling in loans. We always seek to try and work through with the customer to get to an end result that works for them and one for us, but unfortunately there are times when actually not acting can be worse if markets are falling. That is unfortunately the reality that we faced in the last financial crisis.

Senator WILLIAMS: One of the complaints I get among the many bank problems that come to my office as far as Bankwest goes is the total lack of communication. Your clients have come here and said you are doing this and they have asked what is going to happen and where we are we going—and they just get cut off. We have even had cases where the bank manager has been very angry to the customers. Civility costs nothing and can I ask you this: in the future when dealing with your customers who are in trouble please be civil to them and retain their dignity, because they are human beings. I ask you to really look at that point because I do not want to have complainants come to my office in two months' time saying, 'Bankwest have said this and they have been abusive and they have been obnoxious and they have said to go to hell'—because those are the complaints that I have been getting, so I would ask you to do that, to be civil with the people.

We asked a question earlier on and someone, a witness, said this. So I will ask this question. In 2009 in a private meeting was any adjustment made in relation to your book with an Operation Magellan? Does that ring a bell?

Mr Corfield : Yes, Magellan.

Senator WILLIAMS: What was Operation Magellan?

Mr Corfield : It was a review of our portfolio. We do regular reviews of our portfolio. I had just taken over running the business bank at that point and we had a look across our portfolio, which we do on a fairly regular basis and that is what that particular project was.

Senator WILLIAMS: When you had a look at it what did you see?

Mr Corfield : At that point it was the start of 2010 and obviously the financial crisis had hit and what we saw was that either a number of customers were obviously in difficulty, in terms of their payments, or the value of the businesses that they had had fallen significantly.

Senator WILLIAMS: Hence their LVRs went up? Correct?

Mr Corfield : Yes.

Senator WILLIAMS: And hence you took the appropriate action when the LVRs were at a level out of your control?

Mr Corfield : At that point, obviously, we tried to work —

Senator WILLIAMS: There was debt that you were not happy with?

Mr Corfield : We tried to work with the customers to see whether there was a way of getting through the position or whether or not actually the business was at a point where further action needed to be taken.

Senator WILLIAMS: Why has Bankwest registered the websites unhappybanking.com and unhappybanking.com.au?

Mr De Luca : I cannot comment.

Senator WILLIAMS: Ms Tindal, you don't know?

Ms Tindal : I will take that under notice and report back to you.

Senator WILLIAMS: You missed one—unhappybanking.net.au. You have gone and taken those out and it is obviously to cover up what the Unhappy Banking campaign is doing.

Mr De Luca : Obviously, our branding out there is Happy Banking and therefore we would like to own everything we can around Happy Banking.

Senator WILLIAMS: The chair pointed out to me unhappybanking.com and unhappybanking.com.au are registered by your bank. As I said, there is one that is not. A lot of things come to my office and we look at regulation. I was very concerned recently when a solicitor representing Bankwest drafted up an affidavit sent to a client to sign, being a person in business, and the person in business said, 'I'm not signing this affidavit. It's not true.' Shouldn't affidavits be drawn up with the client working with the solicitors and so they put it together, not on one drafted up by someone representing your bank and saying, 'Sign here', when the person says, 'I'm not signing that; it's not true'? I find that very concerning that you would not be aware of it. Can you please tell your legal team that the putting together, fabrication or whatever of an affidavit requires the person you are writing for to sit down and help you put it together, because I am very concerned about that.

Mr De Luca : If you have got something you want to provide to us we are happy to look into it.

Senator WILLIAMS: I have already forwarded it to your bank but I have never had a response.

Mr De Luca : Who to? Who was that to?

Senator WILLIAMS: Mr David Nolan. So a lot of heartbreak and a lot of tears and lot of people busted! The global financial crisis of course was brought on by banks with foolish lending and a lack of regulation in the subprime area in the United States et cetera. Ms Tindal, I see you have been granted the difficult job of strategy and reputation. No doubt your reputation has been hurt through this very public arena of banking. I think you can pick your reputation up rapidly by being more civil with your customers if they are making their way, if they are paying their way, if they are on an interest and principal loan or have been given an interest-only loan. But I see it as very unfair when someone is in trouble and you take their interest from seven per cent to 14 per cent or to 18 per cent default interest or whatever. That to me is 'when you're down we'll sink the boot in'. It is un-Australian. What can be done about people who are in default? Why is it that this interest rate just skyrockets to 18 per cent? And it is not just your bank as it happens through all banks. How does this help to get people out of trouble when you double or treble the interest rate on it?

Mr De Luca : Firstly, with respect to reputation I sit here proudly with a couple of colleagues as customer satisfaction in our institution continues to rise.

Senator WILLIAMS: I saw your graph and it is above the average of all banks, which is very good.

Mr De Luca : Yes, so that is a positive note.

Senator WILLIAMS: It is.

Mr De Luca : With respect to your question around default rates, there is a reason why there are default rates. Obviously, clients in default have contractual obligations and when clients are then put into a team that is more intensive in terms of working with them there is an additional cost to that and also in terms of default there is increasing capital attributed to servicing and supporting that customer. So that is the logic for the default rates.

Senator WILLIAMS: Say someone has got a $1 million asset and they owe you $1 million and they are heading down the tube. Let us say you raise your interest to the default rate and it is 18 per cent. Obviously, you compound that. They are in trouble and they cannot pay you. That amount of your loss is then tax deductible afterwards. Is that correct?

Mr Corfield : We work with each customer individually to understand what the business can actually bear. As we have said a couple of times, it is absolutely not in our interests to be putting rates up and pushing the business out of business as a result. So we work with customers on an individual basis to understand what can be done.

Senator WILLIAMS: You did not answer the question. The interest rate goes up and compounds and they are worth a million dollars and you sell off the asset for a million and they owe you a million and you compound an 18 or 20 per cent interest rate for 12 months. Is that shortfall tax deductible? It is yes or no.

Mr Corfield : To the customer?

Senator WILLIAMS: To the bank. Is it tax deductible for the bank if you have got a loss on a customer where they owe you a million, it compounds out to $1.2 million with these higher rates and you sell the asset for a million and you are $200,000 short. Is that $200,000 tax deductible?

Mr De Luca : The interest income is income. It is not a tax deduction. It is income.

Senator WILLIAMS: But isn't that $200,000 loss on your books? If you have got a customer who on your book owes you $1.2 million and you have sold him or her up and cleaned them out or whatever for one million and there is a loss of $200,000, is that loss tax deductible?

Mr De Luca : The loss is. The loss is, not the interest income.

Senator WILLIAMS: By having huge default interest rates, surely that builds that amount to a situation where in some cases or in many cases of these bad loans that leads you to a greater tax deduction. Would that be the case?

Mr De Luca : Firstly it is in our interests actually to make profits, not to actually have losses. As Ian alluded to, also our interest there is aligned with the customer's where the customer is actually able to take it and actually able to pay to service their debt. As Ian alluded to, we negotiate and work with the customers on a case-by-case basis on what the right default rate is.

Senator WILLIAMS: You have not answered the question. If that money goes out, because the debt explodes by a very high interest rate level, then the more that goes out the more you have on your books that has not been repaid, so is that tax deductible? Yes, it is.

Mr Corfield : Technically, yes. If it causes a further loss then it would be tax deductible but, as we have said, those interest rates simply reflect the additional costs that are in the business. So the reality of what is happening through the PNL of the business is that actually we are no better off; in fact, we are worse off from customers that fall into this.

Senator WILLIAMS: I am seeing a situation here where the Australian Taxation Office might look at this and say, 'Okay, this loan has gone bad. You're sad about it and the client is sad about it.' But then when you can put up interest default rates to 18 or 20 per cent when official cash rates are at 3½ per cent and you can put that on your book, that is a big tax deduction, because that last 12 months of the dying period of the loan allows you to actually escalate your losses very quickly. You know you are going to lose dough. You know they have fallen over. I am not blaming Bankwest. Obviously, with this you can go right around the banking industry in Australia. Doesn't that allow you a greater tax deduction come the end of the year of doing your books?

Mr De Luca : As Ian alluded to, technically yes.

Senator WILLIAMS: You can determine the interest rate which then determines the level of loss. That is a pretty good business deal, isn't it?

Mr Corfield : Except the biggest cost at that point is actually the additional capital that we are holding against that business, so there is not some great benefit to us in jacking the interest rates up at that point because we are carrying that additional capital cost in any case.

Senator WILLIAMS: My concern is the future. We need strong banks; you need a strong bank. You have obviously shed some skin over this whole issue. We need to see a situation, and I come back to the point, where people are treated with dignity and respect, and I can say that I do not believe that the people I have spoken to — many of them your clients — have been treated that way, so I ask that in the future you do that. On what has happened in the past we cannot turn the clock back. Then no doubt, Ms Tindal, your job would be much easier.

Ms Tindal : Correct.

Mr Corfield : Obviously, it is very unfortunate what has happened to these customers over the course of the financial crisis but there are thousands of staff working in Bankwest's business and I think they absolutely go to work every day to treat customers with dignity, and that is why we see our customer satisfaction rising.

Senator WILLIAMS: We had it yesterday with Westpac, which I think is an excellent institution but, through some low-doc loans and, I think, a rogue manager, they are now copping some flak in the media today. You cannot have everyone standing around a big organisation with a gun held to the head of everyone else working there saying, 'You do the right thing or I'll pull the trigger.' You just cannot monitor everyone. Sadly, we have rogues in all industries. I feel a bit sorry for Westpac because they helped build this nation and because of a rogue they are now copping the flak. Hopefully, with yesterday's inquiry those people who have been done over will be compensated and get back on with their life, because when you get a situation when you are broke to seek justice in this country you need money, to pay a solicitor, to pay a barrister or to pay whomever. Sadly, many who wish to seek justice cannot.

Mr De Luca : We would say that obviously some of those cases are unique. As Ian alluded to, we have 4,000 people walk in every day to try and do the best thing for their customers.

CHAIR: Going back to the valuation, in circumstances where you conduct mid-loan valuations who pays for the cost of the valuation, generally?

Mr Corfield : Generally it is the customer.

CHAIR: Is there any obligation on the bank to ensure that you get the best value for money for the valuers' fees? How is that controlled, given that you are not paying it? Generally, if you are wearing the cost you tend to be tighter in terms of ensuring that it is done keenly. If you are not wearing the cost, how do you ensure that you are monitoring that it is reasonable?

Mr Corfield : We operate a panel of valuers and, obviously, we assess them on the quality of the valuation and the price being charged to the customer to ensure that we are getting good value for money across the panel.

CHAIR: You also note in your submission that the results of those valuations are not generally disclosed to the customer.

Mr Corfield : Yes, they are.

CHAIR: They are generally disclosed?

Mr Corfield : Yes.

Mr De Luca : Not in all cases. Not in settling default cases.

Senator WILLIAMS: Why not?

CHAIR: When a customer is in default the bank typically does not provide it? You go on to say that that is because you do not want to impact the price that comes out.

Mr Corfield : The price.

CHAIR: You enter into deeds with customers. We have heard some evidence during the course of this inquiry about deeds of forbearance requiring confidentiality that you have entered into with some of your customers.

Mr Corfield : Clauses.

CHAIR: In terms of what Senator Williams talked about regarding providing a good degree of comfort to your customers, whose livelihoods are being picked up and turned on their heads when they are in default—and their lives, basically—if you entered into some sort of confidentiality arrangement to allow them to see that, at least they would have a degree of understanding as to why what is happening to them is indeed happening.

Mr De Luca : In many cases when they are in default and receivers have been appointed the receiver receives the valuation.

CHAIR: But that does not help the customers?

Mr De Luca : To what degree. At the end of the day the receivers are trying to get the market value for the sale of the asset.

CHAIR: I understand that receivers have a role. I think there are probably some questions about the effectiveness and the efficiency of the receiving industry in terms of delivering the best outcomes for those whose interests they are supposed to be looking after, but that is a separate issue. You raised the issue that customers in default do not receive copies of those valuations. A lot of the concern and confusion of people who are subjected to default proceedings, particularly when it is to do with their loan-to-valuation ratio, is to do with the fact that they never actually get to fully understand why what is happening to them is indeed happening.

Mr Corfield : It is a difficult balance. That is why in most instances we do share it with the customer. But when the receiver is in they are absolutely bound to get fair market value for what they have in front of them. And, whilst I am sure that most customers would treat that document confidentially, receivers very often make that call that they are not prepared to take that risk.

CHAIR: Taking a step back, in your submission you say that any decision by Bankwest to appoint receivers is not taken lightly and there is a whole range of steps and a lot of factors you would look at before you decided to appoint a receiver. You go through a list in the submission. There are customer breaches, their monetary or other contractual obligations, interest not being met when due, debt levels increasing, third-party creditors getting involved, loss-making operations or holdings that are deteriorating, and so on. In any instances, bearing in mind that we have received submissions that suggest this is the case, have you appointed receivers with your customers—I am not asking you to name anybody—purely on the basis that there is a change in the loan-to-valuation ratio, such as a drop in the value during the GFC, or whenever, of the assets that underpin the loan?

Mr De Luca : Only the loan—

CHAIR: Only the loan-to-valuation ratio.

Mr De Luca : Across history?

CHAIR: No, since the beginning of 2008. Is that the practice when you do the valuation you were talking about?

Mr De Luca : It would not typically be solely for the LVR.

CHAIR: But you cannot rule out that that might have happened in some cases—solely?

Mr Corfield : It might well have done, because that would be a covenant within the contracts. What happened in this area during the financial crisis is that the market value of some of these businesses fell by between 50 and 80 per cent. In those cases, especially when the market is continuing to fall, it is very often in the best interests of the customer and the bank to act early rather than late.

CHAIR: That is a judgment call you make?

Mr Corfield : Yes, it is a judgment call.

CHAIR: And presumably you can make that without consultation with the customer to see whether they, too, think it is within their best interest?

Mr Corfield : No, in all instances we would have discussed those with the customer. Clearly, we may not be agreeing with each other but, yes, it is ultimately a judgment call. But a discussion with the customer has always been attempted.

CHAIR: We will come back to that in a minute. Having asked those question I will come back to my valuation question. You were talking about the receivers having a copy of the valuation. If in some cases your customers are put into receivership on the basis of a valuation you have done, whether it be a regular one or a bi-annual one or whatever, the actual valuation in those cases—we said that there may be some—is what is triggering the receivers coming in in the first place. In those circumstances could you provide a copy of the valuation. Where it is used as the trigger to actually kick off impairment—they are otherwise meeting loan repayments and everything is square—you do this valuation and find that there has been a significant drop in value and they no longer qualify against the LVR and it is in the interests of the customer and the bank to take some action now. If that is happening wouldn't it be in the interest of the customer to see it so that they know what is about to hit them, and why?

Mr De Luca : Firstly, if it is only the LVR that has moved and the customer is making repayments, their account conduct has been fine and there are no issues with any other creditors, we obviously would be trying to work through the process with the customer.

CHAIR: You have seen the submissions and you have probably kept an eye on the oral evidence that has been delivered over the past couple of days. I know there are two sides to the case; we raised that with witnesses when they put it to us. But some of those witnesses suggest that the receivers have turned up without any warning, without any discussion or without any ongoing relationship discussions as to how they might actually help them work through this, as they had discussed that they would. That evidence is clearly inconsistent with yours, and we as a committee are going to have to try to work through that and work out what the truth or the reality of that is. What do you say to that? Your evidence has been general—

Mr De Luca : Yes.

CHAIR: With these cases—and we might go into some of them in camera shortly—where these individuals have raised this are they not painting the full picture?

Mr De Luca : I certainly believe so.

CHAIR: It would be your contention that there is more to it?

Mr De Luca : Yes.

CHAIR: Just looking at a couple of general examples. Before you came in we heard—not directly from the person involved, but from a person who was aware of a customer who had been talking with Bankwest—of a particular case where the customer had been asked by Bankwest to refinance. They had found a bank to refinance, being Westpac. Westpac was apparently about to settle the loan and they contacted Bankwest and said it was about to happen. On the Friday, I think, Westpac told Bankwest they were ready to settle on the Wednesday, and Bankwest sent the receivers in on the Monday. Does that sound like something that could have happened?

Mr De Luca : I am happy to have a look into that one.

CHAIR: I do not know the name and we were not provided with the details.

Mr De Luca : All I would say is that there are two sides to every story, and it is absolutely not in our interest and I would be amazed if we sent the receivers in two days before a refinance was going to be happening.

CHAIR: It sounded incredible, but that is what was put forward. I would love to get to the bottom of it and try to work out what the case is. I do not know whether we can get any more details, but if we can we will get them to you so that you can look at the specifics.

Mr De Luca : If you can provide us with the details we will be happy to look into it.

CHAIR: Similarly, we heard of a number of situations similar to this involving developments being financed by Bankwest. In a number of cases there were pre-sold units. In one case there were something like 14 units and 10 units were pre-sold with contracts signed up and deposits paid. Bankwest stopped the funding two-thirds or three-quarters of the way through the construction despite the fact that there were pre-sold contracts for $8.5 million. A number of things occurred, the receivers came in and it was all sold off at something like $2.5 million. This despite the fact that there were $8.5 million of pre-sold contracts on the books, which obviously went by the wayside as a result of the receivership.

That is not the only case; it was just an example. In those sorts of circumstances it seems it would have been in the interests of Bankwest and the customers to have proceeded with completion of the contracts rather than selling out for something one-third or one-quarter of the value of the pre-sold contracts. Are you aware of circumstances like that having happened?

Mr De Luca : What you have alluded to is a small part of the information. If we had more information about it.

CHAIR: Absolutely. We will get you that one.

Mr De Luca : As Ian and I have alluded to, it is not in our interest to sell an asset for a lower value and take a loss.

CHAIR: We have also heard evidence through the course of this inquiry that some of the customers are aware of potential buyers, or alternatively have actually found them, for all or part of their businesses and have approached the receivers you have appointed and have either been ignored or had those offers rejected. Then, subsequently, the property on which the security was held was sold at a much lower level. Are you aware of stories along those lines?

Mr Corfield : Yes. Obviously over the course of the financial crisis valuations fell very dramatically.

CHAIR: That is right. But if your customer is trying to work with you to sort out their problems and comes to you and says, 'I have somebody who is willing to buy this part of the security for this amount of money,' and that would have substantially paid off a lot of the money that is owed to you, but then that is rejected and later on the whole of the security is sold for a price that is even lower, it does not fit in with what you were saying about the GFC lowering prices, because in the midst of it they had somebody who was willing to pay more.

Mr De Luca : That sounds unusual.

CHAIR: Over the past few days probably two cases involving those issues have been put to us. They are cases where, particularly, the receivers—I do not know whether Bankwest was involved—just would not entertain it.

Mr Corfield : Again, there are very often two sides to every story.

CHAIR: Which is why I am putting this to you.

Mr Corfield : During the financial crisis we saw a lot of potential sales of assets, but ultimately those sales fell through because buyers were as spooked by the financial crisis as sellers were.

CHAIR: There is one thing I am curious about. If a revaluation triggered the loan-to-valuation breach, would that then qualify under most of your general terms for the imposition of penalty interest?

Mr De Luca : If it triggered it?

CHAIR: If you did a revaluation of a property and you found that they no longer fitted within the LVR, would that enable you to impose penalty interest?

Mr De Luca : Part of the contractual arrangements, if there was a covenant in place, certainly provides us the opportunity to do that.

CHAIR: The covenant would generally be in most of your loan contracts. With the penalty interest, we have had suggestions during the course of the inquiry that the penalty interest things were hidden, hard to find and that even experienced solicitors and mortgage advisers would—

Mr De Luca : The default interest?

CHAIR: Yes, the default interest provisions. They had not picked up that they were there. Do you have a response to that?

Mr De Luca : Could you repeat the question.

CHAIR: The evidence we have had is that the obligation to pay penalty interest, and the size of it—

Mr De Luca : Default?

CHAIR: Default interest or whatever you may call it. The obligation to pay it was not readily apparent and even experienced solicitors and mortgage advisers had failed to identify the severity of the default interest. Is it hidden?

Mr De Luca : Default interest is standard within the terms and conditions of the contracts.

CHAIR: The argument was that it was impossible to find. You had to go from one to the other and then back again and then work your way through it as if it had been hidden deliberately.

Mr Corfield : I would say our default interest levels are spelt out clearly within our contracts. However, the reality of commercial loan contracts is that these are long and extensive documents, which is why our customers very often get lawyers to review them. I would be surprised if a lawyer was saying that they could not identify where the default interest was in a contract.

CHAIR: I will go back to something I was asking about before. We had evidence this morning about one case where there had been interaction between Bankwest and the customer, but the interaction was more about proceeding with the loan, when it was going to restart, dealing with new builders being brought in et cetera. Then, without any warning that it was likely to happen, they were given 24 hours notice to repay the loan in full. Is that something that could happen?

Mr De Luca : Typically, the conversation and communication with the customer would be an ongoing process. If there were issues with the facilities and the arrangements and the customer was in default, then communication regarding that would happen over a period of time.

CHAIR: I asked what communication had occurred and we were told that the communication that had occurred was merely about how they were going to try and get everything back on track and a lot of things that they were dealing with. There were delays. I think the original facility had expired and they were looking at renegotiating a new facility. Then, without any warning or anyone saying, 'We've had enough; we're not going to proceed anymore,' they got a notice saying, 'In 24 hours you have to pay in full.'

Mr De Luca : As Ian alluded to, I am sure there are two sides to the story. We would be happy to have a look into that.

CHAIR: That is why I am putting it to you. This has been put to us. I want to test it all.

Mr Corfield : Absolutely. But I would say that we work extensively with our customers to try and remediate problems. We have a large and dedicated team that work with those customers. We would not be calling in a loan in 24 hours unless that was at the end of a very protracted period.

CHAIR: A protracted period of discussing the problems with the loan.

Mr Corfield : Absolutely—the problems, the issues, what we were going to do about it.

CHAIR: Would you discuss the potential for such a notice to be delivered if things were not resolved?

Mr Corfield : Yes.

Mr De Luca : Yes.

CHAIR: In your submission you say:

Any amendments to lending policy did not impact existing loan agreements and covenants.

This is post GFC. Does that mean that changes in the loan to valuation ratio would not impact on existing loans?

Mr De Luca : If a customer breached the loan to value ratio, then obviously they have breached the contract.

CHAIR: So a change in the valuation would qualify as a breach of the LVR?

Mr De Luca : Yes.

CHAIR: If the LVR was 60 per cent in an existing loan and then you changed that later on to 50 per cent, 60 per cent would still apply to the original amount?

Mr De Luca : We would not unilaterally change it during the contract period.

CHAIR: But what could change is the value of the property—

Mr De Luca : Yes.

CHAIR: which then triggers it. You raise the issue of the so-called clawback or the warranty. I know it is primarily an issue for the Commonwealth Bank, but you raised it in your submission and in your opening statement. You say:

Any losses that Bankwest incurred in its dealings with customers post acquisition date were borne by Bankwest and could not be "clawed back".

That is consistent with the evidence we received from the Commonwealth Bank yesterday. Is that an absolute statement that there was no way in which, whether it be against the purchase price or in any other way, shape or form, losses or impaired loans that became apparent after the purchase date could be offset or claimed back from HBOS under any aspect of the agreement or the deal with HBOS?

Mr De Luca : That is certainly our understanding, and obviously Mr David Cohen discussed that yesterday.

CHAIR: He did, but I did not ask him that question quite that way. I just accepted what he said, which I still do—'This is the price and we had to pay an extra $26 million after doing what we did.' What I am trying to work out is whether there is something that we have missed, because there do seem to be a lot of issues raised.

Mr Corfield : I was working in the business at that point in time and there were absolutely no operating instructions that would have given you any other sense than what they would have said yesterday.

CHAIR: So, in relation to the $17 billion loan book that HBOS had arranged for Bankwest, there was no way of offsetting impaired loans against what might be repaid or how much the Commonwealth Bank would have paid to take over those?

Mr Corfield : Not on anything that became impaired after the contract date.

CHAIR: One of the witnesses this morning suggested that HBOS's figures—and we will have a look at this ourselves just to see—subsequent to the purchase showed a payment of something like 100 million pounds from the Commonwealth Bank to HBOS for impaired loans. Does that sound like something you are aware of?

Mr Corfield : I am not aware of that.

CHAIR: We will follow that one up anyway.

Senator WILLIAMS: On that $17 billion that the Commonwealth Bank had to come up with, do you know if that figure is right? That figure of $17 billion is thrown around as the amount HBOS had put into Bankwest. Did the Commonwealth Bank have to pay that $17 billion back to HBOS?

Mr Corfield : As I understood at the time—and obviously I was not in HBOS; I was in Bankwest—there was $17 billion of funding secured on wholesale markets by HBOS, and that was replaced at the time of acquisition by CBA treasury, who took $17 billion of funding from wholesale markets in their name.

Senator WILLIAMS: Senator Bushby just asked you about what happened after the sale date of 18 December 2008. Whatever happened with impaired loans, you had to cop it. When the Commonwealth Bank went through the books after that sale date, they would have gone through the loans up to 18 December—correct?

Mr De Luca : In terms of the due diligence?

Senator WILLIAMS: Looking at impaired loans.

Mr De Luca : Post acquisition?

Senator WILLIAMS: Post acquisition. They took over on 18 December 2008. They then had a time period to go back and look through the loan book up to 18 December 2008. Correct?

Mr De Luca : Yes.

Senator WILLIAMS: When they went through that loan book, are you saying that the book was better than they expected? Perhaps Mr Cohen from yesterday found the book was better than expected and they had to pay another $26 million. Is that how it was?

Mr De Luca : We cannot comment on the CBA. We were not privy to the negotiations and review at that point in time.

Senator WILLIAMS: You were talking about your percentage of customers with default loans and so on. It appears that a lot of your customers who were sold up, who fell over or whatever were developers on the east coast. Would that be a fair thing to say?

Mr De Luca : A large number.

Mr Corfield : Yes, I think it is fair to say that Bankwest grew quite rapidly in the properties sector and in a couple of other sectors immediately prior to the GFC which were then areas that got hit the hardest.

Senator WILLIAMS: Did those other sectors include the hotel industry?

Mr Corfield : That was one of the other sectors.

Senator WILLIAMS: Hotels and developers on the east coast. Was it foolish marketing prior to this—the efforts of Bankwest to go out and expand the book in those two sectors on the east coast?

Mr Corfield : I think what we would say is that at the time that felt like a rational and a good place to be growing the book. Obviously no-one at that point was predicting the financial crisis, certainly not the depth that occurred. That was the strategy that Bankwest had pursued at that point in time.

Senator WILLIAMS: You have given us the percentage of your customers who are impaired et cetera—a very good percentage. Do you know what percentage of your customers who were developers on the east coast became impaired?

Mr De Luca : I do not have that statistic.

Senator WILLIAMS: Would you be able to take it on notice? Do you have any idea? That seems to be the sector. East coast development and hoteliers seem to be where the problems arose.

Mr De Luca : Those are industries that were probably the hardest hit as well.

Senator WILLIAMS: Yes, but were they hit that hard that you had to withdraw funds for completing projects? I cannot understand why a project was not completed. You were in partnership with those borrowers. It is a partnership arrangement. You obviously lost all faith in the east coast with units, developments et cetera and you pulled the plug on it.

Mr De Luca : As I said earlier, it is not in our interests to default customers and lose money. It is in our interests to work with them.

Senator WILLIAMS: Do you know how much the east coast market collapsed since the global financial crisis and the percentage term of real estate? Has it dropped 10 per cent, 15 per cent?

Mr De Luca : We do not have that statistic.

Mr Corfield : It is very wide ranging, depending on which state you are in and which sector of the state. But what I would say is, again, some of those developments were not going to be worth anywhere near the value that the customers felt they were going to be worth when they set out on them.

Senator WILLIAMS: If they dropped 30 per cent in value, there was probably 30 per cent fat in the project. It could have come out square. Do you think Bankwest panicked on the development of the east coast in the action that it took?

Mr Corfield : I do not think so. The reality is that some of those markets dropped between 50 and 80 per cent and they have not recovered.

Senator WILLIAMS: It is easy in hindsight, isn't it? Everything is always easy in hindsight. Have you been involved in residential mortgage backed securities with the Australian Office of Financial Management? Have you sold some RMBSs off to them since the global financial crisis?

CHAIR: You would not be allowed to if you are wholly owned by the Commonwealth Bank. The major banks are not allowed to be involved with them.

Ms Tindal : That is correct. We are not allowed to.

Senator WILLIAMS: I wonder about prior to the takeover. During that troublesome time, July 2008 until the takeover of the bank on 18 December 2008, did the Reserve Bank offer you any assistance?

Mr De Luca : Not that we are aware of.

Mr Corfield : Yes, not that I am aware of.

Mr De Luca : I understand the Reserve Bank was here yesterday.

Senator WILLIAMS: Yes.

Mr De Luca : Did you ask them the same question?

Senator WILLIAMS: Yes. In summary, we had a person called Mr Butler here yesterday and he claimed that he had four properties that were mortgaged to your bank, but you insisted on having the whole debt paid off in one. You would not take instalments if he sold the properties off individually.

CHAIR: Do we want to go in camera? We were going to discuss that in camera. Do you want to do that now?

Senator WILLIAMS: Yes, we could do that.

Evidence was then taken in camera but later resumed in public—