CBA blames Storm for margin call delays

Commonwealth Bank of Australia (CBA) has blamed Storm Financial for not passing on
margin calls to its investors despite admitting the bank did not contact the
customers itself.
Appearing before an inquiry into the collapse of the Townsville-based financial
planner, CBA also admitted information it supplied Storm about the financial health
of its customers was not completely reliable.
Six senior Commonwealth Bank staff appeared before the federal parliamentary Inquiry
into Financial Products and Services in Sydney on Friday, led by group general
counsel David Cohen and group executive of business and private banking Ian Narev.
Chief executive Ralph Norris was unable to attend, but will front the inquiry later
this month when it sits in Canberra.
Former Storm boss Emmanuel Cassimatis raised questions before the inquiry in
Brisbane on Thursday why CBA did not make margin calls to Storm investors late last
year as the stockmarket plummeted.
Some Storm customers were encouraged to take out mortgages against their homes to
secure margin loans to invest in indexed share funds.
The market's fall in November and December pushed the ratio of the loan to the
equity investment's value higher, triggering a "margin call" for additional funds or
assets from the lender.
Mr Cohen told the inquiry the bank stopped delivering margin calls directly to
customers by mail some time between 2003 and 2008, in preference to relying on
financial advisers to make the call.
"The reason was due to mail delays, quite often that letter proved to be useless
because the dealer had already notified the customer," Mr Cohen said.
"What we found was that the effectiveness of the dealer contacting the customer was
high, sending a letter didn't add anything to the process."
Senator Brett Mason described that practice as "extraordinary".
"The late transmission of that advice cost people their homes and their livelihood,
that's what we now know after two weeks of hearings," Senator Mason told the
inquiry.
Mr Narev said the bank followed accepted industry standards, and blamed Storm for
delays passing on margin calls.
"We have said in our submission that we relied upon Storm to do the right thing and
they did not do the right thing," Mr Narev said.
Earlier this week the inquiry also heard allegations from former Storm staff that
CBA provided false information on the financial state of Storm customers as the
global financial crisis hit.
A review of CBA's systems since Storm's collapse has shown they were "substantially
reliable," Mr Naver said.
"Substantially as you've identified doesn't equal completely," he told the inquiry.
"So we can't at this point say they were completely reliable, although we don't know
they weren't, and if that contributed to any loss that any individual had then it is
something that will be dealt with in the remediation scheme."
CBA has established a resolution process for Storm customers that have a margin loan
or home loan with the bank.
"The thing that weighs most heavily on us in the organisation is the plight of people.
"I understand that and that has been at the front of our focus," Mr Naver said.
The inquiry will next sit in Canberra on September 16.