By Stuart Washington
The Commonwealth Bank has agreed to make substantial payments - possibly more than $200 million - to compensate victims caught in the collapse of Storm Financial.
The bank's chief executive, Ralph Norris, said agreed principles to compensate its 2000 Storm Financial customers represented a ''fair, transparent and expeditious resolution''.
It in effect guarantees no customer will lose their home, extending a right of permanent tenancies to almost all Storm Financial victims under the bank's hardship provisions.
''Our commitment to our customers was to put things right where we had done wrong, and we are honouring that commitment,'' Mr Norris said.
The Townsville financial planner was put into liquidation after sharp market falls in 2008 wrecked its business, which relied on investors withdrawing money against the value of their houses to invest in the stockmarket.
The moves by Commonwealth Bank increases pressure on banks that have ruled out any need to compensate Storm Financial victims, including Macquarie Bank and Bank of Queensland.
But some Commonwealth Bank customers have rejected the offer outright. A Coolum police officer, Sean McArdle, who had a Commonwealth Bank margin loan, said the offer ''borders on a disgraceful insult''.
Commonwealth Bank negotiated the principles with the law firm Slater & Gordon. The principles were established during six test cases assessed by an independent panel made up of the former Federal Court justice Roger Gyles, QC, Robert Gotterson, QC, and the retired High Court justice Ian Callinan as chairman.
Damian Scattini, a lawyer with Slater & Gordon, said Mr Callinan had congratulated the parties for arriving at novel settlement principles.
''They [the panel] find that it is a fair outcome,'' Mr Scattini said.
The principles involve a set amount of compensation for people who took out margin loans from the Commonwealth Bank, and writes off any ''negative equity'', when the margin loan borrower owes the bank.
The principles also include a commitment to review home loans given to often elderly investors, using the standards of a prudent banker.
If a property was found, for example, to be overvalued when the loan was awarded or that people were given loans they had no ability to repay, the loan would be scaled back to a loan that would have been awarded by a prudent banker.
Under the principles, the ''imprudent'' portion of the loan and its interest would be written off.
Also, Storm investors will have their interest payments since June 19
last year written off if they come to a settlement. Storm Financial investors have the option of agreeing to the principles, having their case heard separately by the review panel or leaving the settlement process altogether.
Slater & Gordon is being paid $5000 a client, or $10 million if all 2000 Commonwealth Bank customers agree to a deal under the settlement process.
The average Commonwealth Bank customer had a Storm margin loan of $1 million.
Under the agreed compensation principles, the investor would have had equity of $110,000 if the margin call had been made at 90 per cent. The compensation would be 90 per cent of this amount, or about $100,000.
If all 2000 clients were to receive this level compensation, it would cost the bank almost $200 million - before any compensation on home loans was considered.
Mr Scattini said the agreed principles were a good framework for Bank of Queensland and Macquarie Bank to adopt in relation to Storm Financial victims.
''I would encourage them to use this as a template,'' he said. ''It's a much better way to do things than litigation armageddon.''