Senator MURPHY (12:59 PM) —Over some period of time now, both publicly and in this place, I have raised issues relating to the management of Trust Bank, or rather the former Trust Bank because as of last year the bank was sold to Colonial. But that action of itself should not remove the burden of responsibility that was associated with the management of the former bank. One of the main reasons I say that is that the price that was realised by the bank—having now been identified as, we hope, $144 million—is essentially less than the bank's net asset value. This would make this bank the only financial institution in recent times to have been sold for less than its net asset value. For instance, the Bank of Melbourne, bought by Westpac, saw Westpac pay 2.3 times that bank's net asset value. If you applied that formula to Trust Bank, Trust Bank would have been worth $345 million. In the case of St George, when it bought Advance Bank the multiplying factor was much higher than 2.3. It begs the question why this bank was sold for such a ridiculously low price.

There is only one answer to this question, and it is incompetence--incompetence in negotiation and incompetence in management of the bank. Frankly, in my view, the board of this bank and some of its management have been grossly negligent in the course of their duty. As I have said before, some management people have been involved in activity that could, if investigated, prove to be of a criminal nature. I will just digress to explain why I say `incompetence'. I will put it in the words of the Chairman of the Board himself, on 1 April 2000. Mr Loughran said:

There was overwhelming evidence that Trust Bank could not have continued trading had it not been sold, according to former Chairman Gerald Loughran. Mr Loughran told yesterday's Parliament Public Accounts Committee hearing that the bank faced a credit downgrading, which would have made access to capital even harder. The bank already had the lowest credit rating of all Australian banks and agencies...

Why? You really have to ask yourself why that is the case. In a time of unprecedented world growth and national growth and of banks throughout the country recording record profits—every regional bank in this country has recorded huge profit increases—this one is going against the national trend. It is not only going against it; it is swimming against it at the greatest possible rate.

I now want to run through a few things that cause me to say this. I have previously raised the issue of the managing director selling his personal car into the bank's car pool for at least $16,000 more than it was worth. I raised the issue of the managing director racing a repossessed car in Targa, in complete breach of the Banking Act, and smashing the car to the tune of $44,000. It is alleged that the car was not even insured prior to and/or during the event and that he used his influence in the bank to get the insurance backdated to cover him. I have raised the matter of the bank giving a $100,000 sponsorship to a person who was twice convicted of deception. But these are just the tip of the iceberg.

Other matters that are deserving of attention and that must be investigated are: allegations that the managing director sold more than one car into the bank's car pool; allegations that another senior officer of the bank, Mr Phillip Spinks, bought a repossessed car for significantly less than it was worth; allegations about the purchase of a property in Launceston for the managing director and the furnishings that went with it; whether Trust Bank sold a building in 160 Collins Street, Hobart, to its own external auditors, Wise, Lord and Ferguson, for a sum of money believed to be below market value; whether that sale caused a loss to the Tasmanian government, as the building was held as security for a loan that was covered by a Tasmanian government guarantee; whether the sale was conducted at arm's length, ethically and in the best interests of the Tasmanian government, given the close relationship between the bank and its external auditors; whether the sale of 160 Collins Street, Hobart, by Trust Bank to its own external auditors placed the auditors in such a compromising situation that they were no longer able to discharge their responsibilities objectively and without fear or favour. If this has occurred, would this not constitute malpractice or a possible fraud on the state?

As I said, there are many issues, and I have outlined just a few. I now want to move to more recent events. Trust Bank had a life of almost nine years. It was formed by the sale of the state owned Tasmania Bank to the Hobart Bank for Savings, trading as SBT, or Savings Bank of Tasmania, for $55 million. As then Premier Michael Field said:

. . . the rationalisation of this State's Banks through the creation of a single financial institution, free of government involvement or backing, and run entirely by the private sector.

The relevance of this statement will be borne out as I go through this sorry saga. The relevance of the fact that the entire $55 million sale proceeds at that time were put back into the new bank will, again, be borne out later. In addition, as part of the process, the government was to have a seat on the new board of Trust Bank. To quote the former Premier:

A seat will also be provided on the new board for a government representative in order to protect the Government's specific interest in the management of Tasmania Bank's wholesale loans portfolio.

On the basis of the issue relating to the building at 160 Collins Street, it is doubtful that the government's representative carried out its role with due diligence. Another area deserving of mention relates to the computer system of both the former banks and Trust Bank. Just before the formation of Trust Bank, SBT, the purchaser of Tasmania Bank, spent some $7½ million on a new computer system. During the sale process, SBT was extremely critical of the then Tasmania Bank's computer system. Shortly after the takeover, SBT scrapped its new $7.5 million system. So what is the relevance of that? The management of SBT became the management of Trust Bank. In 1996 the same management and the board approved some $14 million for a new core technology for Trust Bank. It has now been revealed that the total cost for this computer system was somewhere between $23 million and $30 million, depending on whom you believe.

Now we learn that the new owner, Colonial, will scrap this whole system, which probably was not even completed, because it is not GST compatible. Bear in mind that these decisions were taken by directors who were paid somewhere between $30,000 and $60,000 a year, and in the case of senior management in excess of $300,000 a year. But, of course, that was only until Mr Airey came on the scene. Then, the MD's salary went up to $425,000 a year. He was there for only a very short period.

The GST, in this, case had been on the agenda since August 1998. Yet it would seem that none of these people had the foresight or the initiative to check to see whether their new computer system was GST compatible. Surely this is a failure of their obligation of duty of care and due diligence. What makes this and so many other things an insult to the Tasmanian people is the payouts these people received. David Airey gets top billing here—$2.7 million for just seven months work. He makes Trumbull look like a midget. As part of that $2.7 million, $1.2 million was for shares if a share float occurred, which makes this all the more interesting because the board had decided that the share float would not occur even before Mr Airey was employed.

That is borne out by Mr Airey himself. He said that when he arrived `the share float was not an option'. He arrived in April. Of course, that begs the questions: when was Mr Airey's agreement finalised and why would it be finalised containing a payment for something that they knew and had decided would never occur and did not occur? The reality is that both the equity partner and the share float options were dead in the water even before David Airey was appointed. The board should have known it. Indeed, I believe they did know it.

It is worth noting that, in the 1998 annual report—this is before David Airey—it was noted that the bank had carried out a research and review of strategic partners and that it had appointed an international investment bank to advise on various options. Who was the international investment bank? What advice did it provide? When did the board receive the advice? How much did it cost? David Airey was appointed, as I said, in April 1999 and, according to him, he was brought in to find a 49 per cent partner. He also said that when he got there the float was not on. In June he, Airey, and consultants, whoever they were, advised the board that the 49 per cent option was not on and that they should proceed to a 100 per cent sale. So at least by June this board knew there would be no share float. How much did these other consultants cost? In fact, if we had to have other consultants, why did we need David Airey? Why? These questions must surely be answered.

This train of events clearly demonstrates that something is amiss here. Indeed, it is my view that something very shonky is afoot, which brings forward the question of the board's negligence in its duty. If as David Airey says, `When I got there the float was not on,' why did the board ever discuss a share option with him? I could continue with a range of other matters and raise questions that must be answered, but time probably will not permit that.

However, there is one matter that cannot go unnoticed, and that is the legislation that enabled the sale of Trust Bank. In that legislation, at clause 20, a provision of unbelievable consequence occurs, and I would just like to read it. It says:

No actions against officers of the Bank or TB No. 1.

20 (1) To the maximum extent permitted by law, the Crown is to indemnify and keep indemnified all officers from and against all actions, claims, demands, losses, damages, proceedings, costs, charges and expenses which may be suffered, sustained or incurred by the officers as a result of, in respect of or in connection with, whether directly or indirectly—

the performance of or non-performance of their duties as officers and

the operation and management of the Bank.

It is all right to indemnify them, but what is even more interesting is that at point 2 it says:

No action in any court may be commenced.

Therefore, nobody can even take an action. This indemnification is even greater than the bank itself ever provided. If you read the bank's annual report in terms of indemnification of directors, it says simply:

During or since the financial year the Bank has paid premiums in respect of a contract insuring all the directors against the liability incurred in their role as directors of the Bank and its controlled entities except where--

(a) the liability arises out of conduct involving a wilful breach of duty, or

(b) there has been a contravention of sections 232 (5) or (6) of the Corporations Law.

This new indemnification denies people the right to pursue these people, even under the Corporations Law, and it is just not on.

Can I say further that this bank has been sold for less than its real value and the state has been left holding the indemnification baby. It is a sad and sorry saga. It is a slight on the Tasmanian people. It should never have been allowed to occur. The people of Tasmania at least, including those who both work for and have worked for the bank, deserve an explanation as to why what was a great Tasmanian financial institution was destroyed in such a short period of time. It only points to malpractice, even in the words of the chairman himself.

I have been accused of not seeking to go through due process or various avenues to raise these issues. Let me tell you, I have. Over a long period of time, commencing in 1995, I started to raise these issues with my state colleagues. I went to meet with the Reserve Bank Governor in February of 1996. I wrote to the then Premier in 1997. As I said, I also sought to meet with the then chairman in 1996. I called for an inquiry in October 1996. I wrote to the Premier of Tasmania, Mr Rundle, in 1997. I wrote to the Treasurer in July 1999. I got a response back in August 1999. I wrote to the Chairman of Trust Bank in October 1999 and got a response back. I wrote to the Treasurer again on 28 October 1999, and I got a response back in January 2000. It is simply not acceptable to try to slag me off, because I have followed this in great detail for a long period of time. There is a thing that must come through here—that is, a fair go for the Tasmanian public and for the government and the parliament of the state to deliver it. (Time expired)