A law firm says comments by the Commonwealth Bank of Australia (CBA) that the firm declined to accept test cases put forward to help settle a class action brought by Storm Financial victims are false and pressure clients to settle on the cheap.

The law firm Levitt Robinson commenced a class action on July 1 on behalf of about 300 clients unhappy with a deal to settle claims under a resolution scheme that was created by CBA in June 2009 with plaintiff lawyers Slater & Gordon.

Storm Financial victims lost money when the Townsville-based financial services firm collapsed in 2008 at the height of the global financial crisis, owing millions of dollars to investors.

Many were burned after they took Storm’s advice to borrow against their homes to invest in the share market.

Levitt Robinson on Friday referred to comments by CBA chief executive Ralph Norris in Brisbane’s Courier Mail newspaper on Thursday in which he was quoted saying Storm investors represented by Levitt Robinson could still have their cases considered in the bank’s resolution scheme.

Levitt Robinson principal solicitor Stewart Levitt said in an open letter to Mr Norris that the comments appeared to be a concession by CBA that investors may participate in both the resolution scheme and the class action.

Mr Norris’s reported statement that “the bank had offered to put these clients through test cases but Levitt Robinson had declined” was “neither accurate nor in fact contextually true”, Mr Levitt said.

Mr Levitt said test case negotiations were suspended by the CBA on June 7 because its customer relations manager told him the bank was concerned any payment made to Levitt Robinson on behalf of its clients would end up in the law firm’s war chest to be used against the bank.

Mr Levitt said he assumed CBA had now waived privilege regarding previous confidential discussions held between the bank’s senior legal counsel, customer relations manager and himself.

He said the comments attributed to Mr Norris in the newspaper article traversed the contents of those discussions.

Mr Levitt said at the time that it began the class action in July that the resolution scheme’s settlement terms was “a shelter for the bank with too many investors left heavily exposed”.

“It’s based on a formula which doesn’t recognise anywhere near the full scale of the bank’s liability or the full entitlement to recoup damages that the clients have,” Mr Levitt told AAP on July 2.

On Friday Mr Levitt said CBA refused to treat Levitt Robinson’s clients similarly to Slater & Gordon’s clients within its resolution scheme and made no attempt to resume negotiations before the class action was brought.

Since then, the bank and Slater & Gordon have tried to pressure Levitt Robinson’s clients to return to the bank’s resolution scheme so it could settle their claims at a “low end price” without further negotiation or litigation, he said.

On Friday Levitt Robinson filed the first statement of claim against the bank in the Federal Court on behalf of one Storm victim.

DANNY JOHN

A $6 BILLION-PLUS record profit from the Commonwealth Bank will this week re-ignite concerns the country’s largest banks are bolstering their bottom lines at the expense of customers.

CommBank is due to unveil its annual results on Wednesday and faces additional scrutiny from politicians and consumer groups in the middle of the election campaign. It will also be reporting in a profit season that has so far failed to give the market confidence that company profits can support current stock prices, with reports to date accompanied by generally hazy guidance.

Particular focus on Commonwealth Bank will centre on the bank’s net interest margins – the money it makes in the various parts of its business after deducting all of its costs. Investors will be concerned if margins continue to fall, as it will suggest the bank is struggling to keep its costs under control.

But a rise in margins in spite of increasing costs will be seen as a sign by consumers the industry is making excessive profits through higher interest rates and charges.

Analysts are forecasting the expected 40 per cent jump in net profits, from $4.3 billion at the end of June last year to $6.2 billion 12 months later, will have been achieved as a result of lower margins.

The strong profit growth is likely to have been driven by a large fall in the bank’s bad debt charges – a factor that has blighted the industry’s earnings over the past two years – and the inclusion of a full year’s results from BankWest.

The regional bank was snapped up by CommBank for a bargain price of $2 billion at the height of the global financial crisis in late 2008 and it has since made an increasingly significant contribution to the group’s performance.

CommBank is expected to argue that its profit margins remain under pressure as a consequence of its wholesale funding costs, which remain high despite an easing in the tightness of available credit.

The cost of borrowing internationally is about a full percentage point higher than it was before the global financial crisis. Recent debt problems in Europe have scotched hopes there will be a significant reduction in pricing any time soon.

But the main domestic banks have also experienced an erosion in their margins caused by a deposit war going on between them as they seek to suck in cheaper forms of credit to replace what they raise from abroad.

CommBank’s profit figure will also provide a critical insight into the health of the banking sector that has emerged from the global financial crisis in a stronger position than when it went in, partly as a result of a reduction in competition.

A FORMER Macquarie trader has pleaded guilty to share market manipulation / news.com.au Source: news.com.au

• Trader allegedly inflated company’s share price
• Company eventually collapsed in 2008
• Trader pleads guilty to market manipulation

A FORMER Macquarie Equities senior client adviser is to face the Supreme Court of Victoria for sentencing after pleading guilty to charges of market manipulation.

Newton Chan, of Balwyn in Melbourne’s east, is alleged to have influenced the share price of Bill Express Ltd through hundreds of transaction between May 2006 and March 2008.

Chan pleaded guilty to eight charges of market manipulation contrary to the Corporations Act and one charge of providing false or misleading information to ASIC in the Melbourne Magistrates Court on Friday.

The Australian Securities and Investments Commission (ASIC) alleges Mr Chan used a number of trading accounts held by individuals and entities with Macquarie Equities to buy over 34 million Bill Express shares worth over $6.1 million.

The electronic payments company collapsed in 2008 with $250 million in debt, Fairfax reports.

These transactions created, or were likely to create, an artificial price for the stock, ASIC alleges.

Mr Chan was banned by ASIC in August last year from providing financial services for five years.

He is due to appear for a plea hearing in the Supreme Court of Victoria on June 21.

THE corporate watchdog has obtained orders from the Supreme Court to stop former Macquarie Bank Portfolio Manager Oswyn De Silva from leaving or attempting to leave Australia.

Mr De Silva, 36, a resident of the United Kingdom, was also ordered to surrender his passports to the court, the Australian Securities and Investment Commission said.

ASIC said it applied for the orders as part of its investigation of Mr De Silva’s trading activity between 2006 and 2007.

The watchdog did not specify the nature of the investigation or the alleged offences.

On March 1 of this year Mr De Silva attempted to leave Australia from Perth but was stopped by the Australian Federal Police, ASIC said.

On March 8 Mr De Silva pleaded guilty to a charge of being in contempt of the court’s orders and his sentence hearing has been listed for 15 March 2010.

The restraint orders will continue until Monday 15 March 2010 when the matter returns to court.

news.com.au

By Ilya Gridneff

An Australian banker in Papua New Guinea has escaped conspiracy charges but will be tried for misappropriation in a messy feud with controversial PNG businessman and former politician Peter Yama.

John Maddison, a senior executive of Bank South Pacific (BSP), was charged with 50 counts of conspiracy to defraud and 45 counts of misappropriation in a case that has caused great concern across the business community in PNG.

At a committal hearing in Port Moresby on Wednesday, Magistrate Sinclair Gora said there was “no evidence” of conspiracy and the charges lacked credibility.

Magistrate Gora said, however, there were grounds for Maddison’s misappropriation charges to go to trial.

New Zealand-born lawyer Erik Anderson, whose law firm Gadens Lawyers worked for BSP in their attempts to recoup money they say is owed to them since the early 2000s, also had his conspiracy charges dismissed.

Mr Yama, a former government minister, last December won 7.6 million kina ($A3 million) in a legal battle against a motor vehicle insurance company, but BSP moved to secure the money, claiming Mr Yama had millions in outstanding loans.

Mr Yama, a former police officer and serial litigator, claimed that BSP, their lawyers and two employees tried to defraud him because of a vendetta dating back to 2001.

“I was the main man against the sale of the bank in 2001, I called an inquiry against the bank (now BSP),” he said.

Maddison and his BSP colleague Robin Fleming, also a senior executive, were subsequently arrested then released on bail.

Fleming will face similar charges to Maddison at a later date.

Mr Yama, who denies owing the bank, claimed the two BSP executives and others conspired to defeat the course of justice, charges BSP has rejected as “ridiculous”.

Earlier this month, PNG’s National Court overturned a district court decision to issue arrest warrants for Australian accountant James Kruse, PNG Law Society president Kerenga Kua, Motor Vehicle Insurance Company boss John Mua and BSP company secretary Mary Johns.

All are involved in the ongoing BSP Yama dispute.

There are reports that Mr Yama has used his influence in the judicial system, with police and in politics, and that several people connected to the case have gone into hiding for fear for their lives.

Gadens Lawyers has since stopped representing BSP in the Yama case after several of their junior lawyers were assaulted and threatened outside their Port Moresby homes.

“IT’S disgusting, isn’t it?”

Schoolteacher Catherine Sutton is standing where the extra bedroom should be when she delivers an assessment that neatly sums up how millions of homeowners will feel after the over-the-top rate rise by Westpac.

There is no extra bedroom or family room because the banks have taken them with their gouging.

“We have had to hold back on the renovations,” Mrs Sutton, 36, said.

“We count our pennies now, pay the mortgage and make sure the kids are fed.”

As children Lily, 8, and Charlie, 5, chase the family dogs around the backyard of their Orange home, their father Chris explains that it will be a tighter Christmas.

Courtesy of the banks.

“It limits us in terms of what we can do on holidays,” Mr Sutton, 37, said.

The Suttons, both schoolteachers, would like to switch lenders but the fees are too high and all the majors are as bad as each other anyway. “They’ve got you over a barrel,” Mr Sutton said.

Never mind the greediness of the big banks, the repeated rises from the Reserve are pain enough. “It makes it hard to get into a regular pattern of budgeting and saving,” Mr Sutton said.

Mortgage repayments are likely to push many recent homebuyers toward the brink in 2010 as rates rise beyond the expectations and budgets of many.

A Daily Telegraph survey of new entrants to the housing market – conducted before the central bank raised rates for an unprecedented third month in a row yesterday – has revealed many buyers under-estimated the extent of future RBA action.

Forty of the 100 property buyers surveyed said they expected official rates to rise by no more than 1 per cent by December next year.

Following yesterday’s 0.25 per cent increase, the survey suggests these buyers are budgeting for only three quarter-point moves in 2010. However, interest-rate futures predict as many as five more 0.25 per cent rises.

Perhaps of more concern is that even if rates do rise by just 1 per cent, more than half of the respondents said that repaying the mortgage would become a difficulty.

About 40 per cent admitted over spending their buying budget.

Nearly 90 per cent had anticipated the RBA would lift rates yesterday.

But only 17 per cent thought monetary policy action was warranted.

Close to two-thirds said the RBA was out of touch. And 90 per cent believed commercial lenders had the ability to offer better deals to borrowers.

JUSTICE Robert Austin has delivered a stinging rebuke to the corporate regulator for almost every step of its long, expensive case alleging breach of directors duties against One.Tel’s managing director, Jodee Rich, and finance director, Mark Silbermann.

The judge criticised the Australian Securities and Investments Commission’s decision on which directors to pursue, the breadth and complexity of its allegations, its choice of witnesses and the way it ran the case.

”It is noteworthy that ASIC’s proceedings were brought against the non-executive chairman and three of the four executive directors, and not against any of the other directors,” Justice Austin said.

The underlying concept of its statement of claim was that executive directors carelessly failed to keep the board informed of the company’s financial position.

”That leaves open the question, not before the court in the present proceedings, whether the other directors were careless in failing to find out,” the judge said.

However, he did not accept the argument put forward by lawyers for Mr Rich and Mr Silbermann that there was ”an unholy alliance” between ASIC on the one hand and, on the other, One.Tel’s largest shareholder Publishing & Broadcasting Ltd and its representative on the One.Tel board, James Packer.

The evidence was ”very thin” to support the defence claim that when ASIC realised it would need to rely on Mr Packer as a witness, ”a blind eye was turned to Mr Packer jnr’s deficiencies in his conduct as a director”.

Justice Austin did not make any adverse findings about Mr Packer’s credibility, but said he misunderstood the role of a witness.

”It seems to me that he attempted to avoid giving direct answers because of his perception that his role in cross-examination was to put his side of the case, and therefore to spar with counsel when dealing with matters that did not help his case,” he said.

Mr Packer’s co-director, Lachlan Murdoch, gave ”hazy and unspecific” evidence.

”My view is that there was a significant problem of lack of recollection in Mr Murdoch jnr’s evidence, which undermined its credibility,” Justice Austin said.

In contrast the judge was impressed by Mr Rich and, to a lesser extent, Mr Silbermann.

”Having presided over trials in the Equity Division for over 11 years, my comparative assessment of Mr Rich’s evidence in cross-examination is that he was one of the best prepared party/witnesses that I heard in that time, with a very good level of recollection of detailed facts in the witness box,” the judge said.

There were some inconsistencies and mistakes, along with memory lapses, in Mr Silbermann’s evidence.

”As with Mr Rich, it goes without saying that Mr Silbermann was an interested witness, fighting for his commercial survival, and so his evidence must be assessed with caution,” he said.

”His demeanour was somewhat more circumspect than Mr Rich’s, though I formed the impression that he was trying to answer the questions that were put to him to the extent of his knowledge.”

ASIC’s summary of Mr Rich’s performance was the basis for another criticism of its approach.

”It is somewhat unsettling that ASIC’s assessment of Mr Rich as a witness, reflected in its submissions, is so sharply at odds with my own assessment. But its critique of Mr Rich is, unfortunately, consistent with the general tendency of its submissions to exaggerate its case.”

The judge’s harshest words were directed at ASIC’s strategy.

There was ”is a real question whether ASIC should ever bring civil proceedings seeking to prove so many things over such a period of time as in this case,” he said when explaining why the case had run from 2004 until 2007 and why it had taken 27 months from the final hearing day until the delivery of his judgment.

”A case might have been brought focusing attention on One.Tel’s financial condition at a particular point in time, for example by invoking a cause of action based on the allegation that a particular One.Tel media release (for example, the ASX announcement of 4 April, 2001) was misleading”.

The judge noted that ‘’such a case” was recently brought by the regulator against the directors of James Hardie.

That suit, which the regulator won, took 44 hearing days, compared with One.Tel’s 232.

”I do not mean to express an opinion about the likely outcome of such a case, if ASIC had brought it, and I note that if such a case had been brought it might have been against a differently constituted group of defendants, perhaps the board as a whole,” the judge said.

”Instead, we have had a case which seeks to prove the financial condition of a large multinational corporate group with various businesses, some in start-up mode and some more established, over a period of four months, with a view to establishing not one but many breaches of the statutory duty of care and diligence. I wonder whether that is beyond the bounds of reasonable scope of civil litigation.”

The chief reason ASIC lost the case was its failure to prove the ”true financial circumstances” of One.Tel between February and May 2001, when the board called in administrators.

For example, a central plank of the case was that One.Tel’s liquidity declined drastically during that time.

It tried to prove this by relying on evidence solely about the Australian operations, although One.Tel’s liquidity was measured and managed on a group basis including international operations.

”That is like trying to establish that the available water supply in the Sydney basin is diminishing, by proving declining water levels in every dam except the Warragamba,” the judge said.

”It may be shown that the water levels in the other dams are falling to dangerously low levels, but (hypothetically) it is possible that Warragamba is full to overflowing.”

When ASIC tried to prove that One.Tel was running out of cash, the documents it put forward were ”wholly or in part, too unreliable to form the basis for financial findings”.

ASIC then failed to call witnesses who might have explained the documents and their status. The defendants, who did not bear the onus of proof, were able to advance plausible alternative explanations for what had occurred ”and ASIC failed to prove its case to the appropriate civil standard, having regard to the presence of those alternative explanations”.

For example, Mr Rich was entitled to believe that sufficient financial support would be forthcoming from One.Tel’s largest shareholders, News Ltd, PBL and PBL’s parent company Consolidated Press Holdings, the judgment says.

”It seems to me there was every reason for Mr Rich to believe, on the basis of Mr Packer jnr’s words and conduct, that PBL/CPH would support One.Tel through any temporary liquidity issues, and also that Mr Packer jnr could persuade News to join in providing any such support,” Justice Austin said.

”On the basis that this is the correct assessment of the level of support available to One.Tel from its two major shareholders until late April or May 2001, it seems to me there was a reasonable foundation for Mr Rich’s belief that further financial accommodation could be obtained from Toronto Dominion, if that were to be regarded as the most effective funding option.”

This situation changed when the late Kerry Packer ”formed the view, at some time around 19 April, that One.Tel would run out of cash”.

Another section of the judgment complains of ”a gap in ASIC’s evidence about May 2001 and in particular, the significance of the PBL report presented to the board on 28 May and the circumstances surrounding what appears to have been a substantial change in the [PBL] analysis between about 8 May and 28 May, of a kind that required explanation from a witness such as [a PBL executive].”

When the case closed in August 2007, Justice Austin commented it had become ”a very unusual case in the extent to which the court is invited to make findings of a financial kind on the basis of financial documents”.

ASIC will now have to hope it remains an unusual case.

Its chairman, Tony D’Aloisio, had little comment yesterday beyond saying he would review the 3105-page decision in detail.

‘The case has also provided important guidance to ASIC on how to run similar matters in the future,” Mr D’Aloisio said.

Source: The Age

THE AUSTRALIAN Tax Office’s move against private equity outfit TPG over an alleged tax avoidance scheme using a company based in the Cayman Islands to minimise tax has implications for the Federal Government’s $61 billion Future Fund.

Five Cayman Islands subsidiaries were revealed in the Future Fund’s latest annual report, tabled in Federal Parliament late last month, the Herald Sun reports.

The fund and a raft of Australian corporates continue to use companies registered in countries on the ATO’s tax haven hit-list despite public warnings from the ATO and a worldwide crackdown on the use of tax havens in response to the global financial crisis.

On Wednesday the ATO slapped a $678 million tax bill on two TPG companies in Luxembourg and the Cayman Islands and took court action in an attempt to freeze the $1.5 billion the private equity group earned from the float of department store Myer.

Caught up in the freeze was about $135 million belonging to the Myer family, which will tomorrow launch a legal bid to recover damages and compensation from the ATO.

The freeze was lifted after a day, but the family aims to recover costs including interest, legal expenses and the cost of arranging temporary finance facilities.

An ATO booklet on tax havens, last updated in June, contains a specific warning about the use of tax havens in private equity deals such as TPG’s November 2 float of Myer.

“The use of tax havens in some large private equity deals may require monitoring of the payments made to general partners of the equity investing vehicles to determine, among other things, whether some part of the profit is properly attributable to Australian enterprises,” the ATO said.

It also gave a general warning about the use by big business of related companies in 28 tax havens with “secretive tax or financial systems” including the Cayman Islands, where the Future Fund set up five subsidiaries last financial year.

“The Fund seeks to maximise after tax returns and, where it is legitimate to use a structure which protects the claim to sovereign immunity, this path has been taken,” the fund said in its 2008-2009 annual report.

It said it was committed to “full transparency and information exchange for tax purposes and compliance with all relevant laws”.

“Importantly, the Fund does not invest in schemes and arrangements that use secrecy laws to conceal assets and income that are subject to tax.”

Other Australian companies using tax haven structures include Astro Japan Property Trust, formerly Babcock & Brown Japan Property Trust.

The listed trust, which is now independent of failed investment bank Babcock & Brown, holds its Japanese properties in a complex structure that uses five companies registered in the Cayman Islands.

Voting stock of four of the five companies is held by an unnamed Cayman Islands charitable trust, Astro’s latest annual report shows.

The arrangements are “designed to assist in achieving bankruptcy remoteness” for Japanese companies within the Astro group, the report says.

Australia’s banks and insurers also have presences in tax havens, with the NAB, the Commonwealth Bank and the ANZ maintaining branches in the Cayman Islands, while insurance giant IAG has three subsidiaries in Gibraltar and one in Mauritius.

Richard Gluyas - The Australian

COMMONWEALTH Bank is reaping the rewards of its “post-box” banking operation in low-tax Malta, booking a $55 million benefit last financial year from lower offshore tax rates.

The benefit was almost double its nearest big four rival, suggesting that the structure set up by CBA in the Mediterranean island nation is generating tens of millions of dollars in tax benefits, The Australian reports.

Malta is no longer regarded by the Australian Taxation Office as a tax haven, but was blacklisted as such earlier this year in proposed US legislation that was co-sponsored by Barack Obama when he was a senator.

The CBA holding company Newport, which has a $5 billion balance sheet, is domiciled in Malta.

Newport, in turn, owns CommBank Europe, which has held a Maltese banking licence since 2005, employing a total of six people, including clerical staff and executives.

CBA chief executive Ralph Norris defended the Malta structure at last Monday’s September quarter trading update.

“Malta is a bona fide country of operations into Europe,” Mr Norris said.

“We have a very significant amount of lending into infrastructure and the like in Europe, and because it’s euro-denominated and funded, it’s not the way we could operate out of London.

“Certainly it does have a lower tax rate, but so do places like Hong Kong, Singapore and the like, and also the offshore banking unit here in Australia.”

The tax efficiency of the structure is revealed in CBA’s 2009 annual report, which shows a $55m benefit from overseas tax rate differences, up from $35m the year before.

The Malta operation, featuring the bank’s head of tax, Chris Millett, as a Newport and CommBank Europe director, is believed to have been pronounced technically sound by the ATO.

Westpac today announced they are leading the way in the banking sector in supporting the Australian Government Green Loans Program and offering an interest free Green Loan¹. The industry-leading move will provide homeowners with a real opportunity to improve their energy and water use efficiency.

The average Australian household produces approximately 13 tonnes of greenhouse gases each year, enough to fill over 700 balloons each day. The Green Loans Program assists families to install solar, water saving and energy efficient products to reduce greenhouse gas emissions.  It also has the potential to help around 360,000 Australian households save on energy and water bills.

Peter Hanlon, Westpac’s Group Executive for Retail and Business Banking, is a keen supporter of a program that helps Australians take actions toward an environmentally sustainable future.

“We are delighted to work alongside the Federal Government to deliver this important initiative which I’m sure many will agree is a vital investment in our future.

“Sustainability is an integral part of Westpac’s business strategy, having already reduced our emissions by 40% between 1996 and 2008 with a further reduction of 30% targeted by 2013. We will continue to develop innovative new products and services which meet emerging consumer needs on these issues.”

The bank has been working with the Federal Government for the last six months to offer the new Green Loan.  Over 35,000 Australians have already taken advantage of the free home assessment provided by the government, valued at over $250 each.  Westpac’s Green Loan can be used to make the changes recommended in the home sustainability assessment report, giving the opportunity for homeowners to save on the cost of energy and help to minimise water usage.

“Many of our customers choose to bank and invest with Westpac because they share our views on sustainability,” said Mr Hanlon.

“We believe it is important to educate and assist our customers to take responsible actions towards creating an environmentally sustainable future,” he concluded.

Westpac’s new Green Loan will be available from 16 November 2009.  It includes no monthly service fees, establishment fee or prepayment fees and it is interest free, repaid over a maximum of four years.  More information on Westpac’s new Green Loan is available from our website.

The free home sustainability assessment is the first step in qualifying for an interest-free loan of up to $10,000 over four years.  A qualified home sustainability assessor visits the household and investigates energy and water consumption patterns to identify actions that households can take to save energy and water.  Each household then receives a tailored report outlining recommended actions ranging from small things like switching to energy efficient light bulbs to larger scale changes such as installing rainwater tanks and solar panels.   Households may wish to access a green loan to make the larger scale improvements.

Westpac’s commitment to reducing emissions includes:

• saving 310 tonnes of paper by offering customers electronic statements.
• establishing a five year climate change strategy focused on greater engagement with employees, suppliers and customers.
• sustainable purchasing policies for fleet vehicles, paper and IT equipment.
• In addition to the reduction of our emissions by 40% between 1996 and 2008, with a further reduction of 30% targeted by 2013.

¹ to a maximum of $10,000.