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Thursday, 23 June 2005
Page: 268

Senator MURPHY (12:44 PM) —I am sorry that I was not in the chamber to speak on the second reading, Mr Deputy President. I did not expect people to incorporate some speeches, because they said that there were going to be no incorporations.

The DEPUTY PRESIDENT —That is not within my province.

Senator MURPHY —It may not be, but my name was on the list. Senator Campbell stood up and said he wanted to incorporate speeches for Senator Sherry and Senator Webber.

The DEPUTY PRESIDENT —You can speak to the third reading, Senator Murphy.

Senator MURPHY —Thank you. In departing from this place, I thought I would make one final mention of an important issue in my state of Tasmania. The issue I refer to is what was probably the worst financial disaster in the state’s history. The matter I refer to is that of Trust Bank, which, if it were still operating today, would be celebrating its 170th year. It would have been Australia’s second oldest bank. There have been many stories written about the Trust Bank saga, but many of the facts have never seen the light of day, so it is important to ensure that Tasmanians are given the opportunity to know the real story. As people know, Trust Bank was formed as a result of mergers and takeovers of other financial institutions, the oldest being the Launceston Bank for Savings, which commenced in 1835, just 17 years after Australia’s first bank, Westpac.

To really understand the ultimate demise of Trust Bank, we must look at its history. I will start in late 1987, when Tasmania Bank was formed following the merger of the Launceston Bank for Savings and the Tasmanian Permanent Building Society. In February 1988, Tasmania Bank appointed Mr Don Adams as its first managing director. As managing director, Adams announced the establishment of a wholesale banking division and appointed a Mr Neil Moore as a general manager of the WBD. They embarked upon a substantial lending program to mainland property developers and entrepreneurs. They put a huge and expensive executive structure in place. Staff numbers were growing rapidly and expenses were rising rapidly, but there was no corresponding increase in business earnings.

By 13 May 1989, the WBD was almost exclusively writing syndicated mainland property loans. After reading alarming reports in the Australian Financial Review about some of the borrowers and receiving some internal information, Alwyn Johnson, an employee in the bank, started voicing concerns over the following: poor-quality loan applications were being put forward and approved by the board; some of these loans were equal to 30 per cent of the bank’s capital; the pricing of these loans was totally inadequate; security for the loans was of poor quality and unlikely to be of much worth if called upon; and the bank did not have adequate provision to cover a department like the WBD. Despite the public nature of the information, no-one on the board or the bank’s executive raised any concerns. Even the external auditors signed off on the 1989 accounts without even identifying the problems within the WBD loan portfolio.

In December 1989, Tasmania Bank recorded its first monthly loss in its 154-year history. In January 1990, the board continued seemingly unaware of the problems in the WBD loan portfolio. In March 1990, Mr Johnson became aware of further non-performing loans in the WBD. On 9 June 1990, Alwyn Johnson sent his first letter to then Premier Michael Field. The Premier called in the auditors in response to Mr Johnson’s letter. On 10 July 1990, the Premier appointed Dr Michael Vertigan, director of Treasury and Finance, to the board to ensure proper oversight.

In early August Mr Moore, the architect of many of the loans, announced he would leave the bank and go elsewhere. On 8 August 1990, Johnson sent his second letter to the Premier saying that the bank’s financial position was still deteriorating. On 13 August, while the auditors were in the process of uncovering the financial wreckage of the wholesale banking division of the bank, the bank’s board sent out press releases which were published in the Examiner, Advocate and Mercury newspapers, advising of Mr Moore’s resignation. They wrote glowingly of how he had successfully established the wholesale banking division and said that he would be a loss to the state. There was a loss to the state all right—but it was not Mr Moore.

Despite Mr Moore’s departure, the wholesale banking division continued to submit mainland property loans to the board and receive approval, even with the government representative, Dr Vertigan, on the board. On 22 October 1990, Mr Robert Woolley, a senior partner in Deloittes—that is, the auditors called in by the Premier—telephoned Mr Johnson at work wanting to see him urgently. Mr Woolley also phoned a Mr Peter Purtell, a senior manager in the bank. He arranged for Purtell and Johnson to meet at Deloittes at 8 am the following day. From 23 to 28 October 1990, Johnson supplied files on the wholesale banker division and helped draft the auditor’s report to the Premier and the bank’s board of directors. On 31 October 1990, the Tasmania Bank board met and the auditors tabled their report.

Instead of the usual half-day meeting, the bank met for three days. On the second day of the meeting, the board considered three options: (1) do nothing and reject the report, (2) resign or (3) sack the managing director. They opted for option No. 3. Frankly, they should have opted for options 2 and 3, as they were all guilty of allowing the situation to develop. It took these people just 30 months to destroy one of Australia’s most profitable banks.

During the board meeting they asked Mr Woolley if the author of the anonymous letters to the Premier was a bank staff member and for Mr Woolley to reveal the identity of the person. Mr Woolley confirmed that the person was a staff member, although he refused to reveal their identity. However, the board asked Mr Woolley—I repeat: asked Mr Woolley—to pass on to the staff member a vote of thanks from the board. Additionally, Dr Michael Vertigan, the state government representative on the board, drew Mr Woolley aside and conveyed to him that, as a result of the staff member’s action, should their position within the bank become untenable, the government would be obliged to find a job for that person.

On 6 November 1990, the then Premier, Mr Field, made a statement to the parliament about calling in the auditors. The following two days saw queues of depositors outside Tasmania Bank branches waiting to withdraw their funds. In March 1991 the Premier announced the SBT takeover of Tasmania Bank, which was the formation of Trust Bank. On 1 September 1991, Trust Bank officially opened for business, with its chairman, John Harris, at that time saying, ‘The bank was launched with a single image and a determination to be a bank for all Tasmanians.’ How wrong that statement came to be.

Following the debacle of Tasmania Bank, which cost Tasmanian taxpayers at least $37 million, you would have thought some valuable lessons would have been learnt, but no. Trust Bank’s management continued with what seemed a greater fervour for incompetence than all of its predecessors. The board of the new bank were just as oblivious to the incompetent management entrenched in its new bank as they were previously. The government now had two representatives on the board: Dr Michael Vertigan and Treasury head, Mr Don Challen. Despite having witnessed the wreckage in Tasmania Bank, they raised no questions about the seriously questionable banking practices that were being applied by the bank’s management. The bank’s profits continued on a downward spiral, yet there was still no action from the board or the government. It is probably useful to consider here what managing director Paul Kemp then had to say:

We will earn Tasmania’s trust by being the best bank in the state. Our efforts will start from day one, and we intend to set standards which our competitors will have to match.

Well, it is just as well too many did not try to match them. Trust Bank started with more than 40 per cent of the Tasmanian bank deposit market, which at that time was $3.088 billion, and in excess of 30 per cent of the lending market, miles ahead of any of its competitors.

So how did this bank end up just seven short years later in a position where it was unable to continue to operate and was sold for a mere $149 million? Was it pressure from other banks? Hardly. The big banks had a poor service reputation with the Tasmanian public, which is still the case today. The real reasons and the evidence for Trust Bank’s demise can be found in its annual reports, which with proper analysis identify myriad cases of poor management and poor board decision making. Rather than being a bank for all Tasmanians, Trust Bank continued the same way as Tasmania Bank. Trying to expand its business on the mainland, it continued to lose the confidence of the Tasmanian public and its depositor base continued to shrink to the extent that the bank, for the first time in its 154-year history, was forced to borrow money on the short-term money market—some $700 million. The net effect of this on the bank’s annual profit was some $35 million. How could the board and management of any bank allow this to happen?

In contrast, other banks of a similar size to Trust Bank were flourishing. Today, banks such as Adelaide Bank, Bendigo Bank and the Bank of Queensland all have capitalisation values of more than $1 billion. If you were to translate those values to Trust Bank, it would have given Trust Bank a value of around $1.3 billion. One can only imagine what Tasmania could have done with that sort of money.

The unfortunate thing about this financial fiasco is that many people tried to avert it, but such efforts were ignored. One person, Alwyn Johnson, was made a pariah and suffered badly, both emotionally and financially. Many of the people involved in this fiasco continue in public life today—some of them on huge taxpayer funded salaries. Don Challen, for one, is still the head of Treasury on some $300,000 per year. So taxpayers continue to pay for people who were involved in the complete maladministration of what should have been a great financial institution.

It is worth noting that some former members of parliament continue to try to deny the truth. Indeed, some—such as former Attorney-General Peter Patmore—clearly misled the Tasmanian public in response to Prime Minister John Howard’s recommendation for an independent inquiry. Dr Patmore said in the Examiner on Saturday, 15 July 2000:

Mr Johnson had been given a redundancy payment, a settlement and had his mortgage paid off and he was now trying to double dip.

Peter Patmore knew that not to be true and yet, even when he was given the opportunity to correct that, he chose not to. Many other lies were perpetrated by the likes of the former managing director of Trust Bank, Paul Kemp; the chairman of the bank, John Harris; the Finance Sector Union; and, to some extent, former Premier Michael Field.

Some of the truth can be found in the briefing note that was prepared by the state Department of Treasury and Finance for the then Premier Ray Groom. Let me demonstrate a few of the lies. Firstly, I want to go to a letter to a committee of this Senate by the chairman of the bank, John Harris. He says in part:

Let me say at the outset that, as a bank, we have no opposition to the general proposition that in genuine cases where individuals are unfairly persecuted for bringing to light matters of public interest which they have become aware of during the course of their employment there should exist appropriate mechanisms to protect the interests of such persons. The matter concerning Alwyn Johnson is not a case which falls within this category.

If you recall what I said earlier about Mr Harris’s statement, he says on the last page of his letter:

Mr Johnson was not at all a whistleblower in the sense that the problem loans which he adopts as his own were already the subject of a special audit and had been discussed by representatives of the union with the government and other employees of the bank prior to the first communication by him. The matter was already well at hand when Mr Johnson sought to contribute to it.

That is an outright lie, backed up by his own statement of 13 August 1990. This bloke lied to a committee of this chamber, and had I, as a member of the committee, known at the time, I would have picked that up, but unfortunately it took me some time to track this down. I will seek to table all of these documents, but they are all in the public domain.

I will read about the claim of Dr Patmore. This is from the department of treasury briefing note to the then Premier, Ray Groom. It says on the last page:

The FSU conducted a meeting with Premier Field on Mr Johnson’s behalf in late 1991. The meeting resulted in the bank agreeing to participate in an arrangement to write off Mr Johnson’s mortgage as compensation. Dr Bob Brown questioned Premier Field in the parliament about Mr Johnson’s situation, following which the government withdrew from the arrangement on the grounds that it did not wish to be seen to be responding to pressure from the Greens.

This is available publicly and I would urge people to read that minute.

It is also worth noting who the bank’s board members were in 1990. I say this with no disrespect to those people, including former Premier Jim Bacon. It is very interesting that, had this bank gone under at that time, I do not think Jim Bacon would ever have made Premier of the state. I say that with no disrespect to him, but that was the circumstance that confronted this board, and it is something that the Tasmanian public ought to be aware of.

There are a number of other documents which I would like to table, including the two letters that Alwyn Johnson wrote to the Premier. They are both in the public arena. There are also some extracts from the Tasmanian parliamentary Hansard and an extract from a book which was written by Jennifer Pringle-Jones—anybody who wants to really know the history of the Trust Bank should read that book, called In Trust for 150 Years.

Finally, in respect of this issue, I would like to quote from an article in the Examiner on 12 December 1999 by the then editor of the paper, who is now in charge of the Premier’s office, Mr Rod Scott. He says:

Take Premier Jim Bacon’s comment last week about compensation for Alwyn Johnson, that it was a matter between Mr Johnson and his former employer. What a cop-out.

Mr Johnson has written to Mr Scott since he became the head of the Premier’s office and unfortunately he has never received a response. I say again that this was a sorry saga. It was very sad that Tasmania had taken away from it a very important financial institution, one that would have been very valuable to the Tasmanian public today.

I did make a valedictory speech, but in the few minutes I have left I want to thank all of the committee staff that I have worked with over the 12 years I have been here; the Senate staff and all the people associated with the parliament; all the people who work in this chamber; and, from when we had a proper Senate transport system, all of those people and those who are still there today. It has been great knowing those people. I have always appreciated all of the assistance that they have given me.

To the colleagues that are departing this place, I wish them all the best, and to those that are staying, I wish you all the best when you come back here in August. I say to the Labor Party—and I say special thanks to those who wrote some very nice words—that I hope you are good enough to win the next election, because I think it will be time for a change of government. With those words, Madam Acting Deputy President, I seek leave to table the documents that I have referred to and I conclude my speech.