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.

Colin Brinsden – The Courier-Mail

Economists say the latest housing data is likely to prompt the RBA to lift its official cash rate / File

• Housing data points to rate rise 
• “Biggest monthly price hike in five years”
• Experts predict rate rise

RISING house prices and improving credit demand could sway the Reserve Bank of Australia to resume lifting its official cash rate at its meeting next Tuesday.

New data released today showed house prices posted their biggest monthly increase in at least five years in January, while consumers appeared to be regaining confidence in taking on credit despite last year’s interest rate rises, The Courier-Mail reports.

The reports came on top of this week’s stronger-than-expected construction and capital expenditure data, upbeat business investment plans for the next 18 months and recent robust labour force data.

Still, pricing on financial markets suggests the rate decision will be a line-ball call as to whether the central bank lifts the cash rate by 25 basis points to 4.0 per cent at its meeting.

“On balance we expect the Reserve Bank to lift rates next week, but we don’t hold the view with supreme confidence,” Commonwealth Securities (CommSec) chief economist Craig James said.

Likewise, JP Morgan chief economist Stephen Walters viewed the decision as “something of a coin toss”.

“Our forecast is that the RBA will leave policy steady on Tuesday although, like that of the market, our level of conviction is low,” Mr Walters said.

“The case for a further rate rise is convincing, but it was even stronger back in February when the RBA bucked unanimous expectations for a fourth straight hike.”

Still, whether or not the there is a rate rise next week, RBA Governor Glenn Stevens has made it clear that there will be further increases this year given that lending rates are still 50 to 100 basis points below their decade average.

Despite the three rate rises in as many months late last year, there was a modest improvement in credit demand in January, RBA data showed.

Total credit rose by 0.4 per cent in the month, double economists’ expectations and the fastest pace of monthly growth in a year.

Demand for housing loans lead the way, rising 0.7 per cent and matching December’s growth despite the end of the government’s increased first home owners grant at the end of last year.

Other personal loans rose by 0.5 per cent, lifting the annual rate to 0.2 per cent, the first positive yearly rate since September 2008.

But business credit growth fell a twelfth consecutive month.

Also released was the RP Data-Rismark Hedonic Australian Home Value Index – Australia’s largest property database – which showed home prices rose by 1.8 per cent in January, the biggest increase in the five-year history of the series.

Home prices were up 11.8 per cent on a year ago, the fastest rate in 22 months, although CommSec’s Mr James pointed out that prices are coming off a low base.

He said the strong gains represent “great news” for homeowners, serving to boost wealth levels and confidence.

“While budding home buyers would prefer prices were a little lower, its clear that they wouldn’t be keen to get in the property market if prices were going backwards.”

PETER MARTIN ECONOMICS CORRESPONDENT

CUSTOMERS angry at the big interest rate rise imposed by Westpac are leaving the bank, according to Australia’s largest mortgage broker.

AFG said a ”large proportion” of its business last month came from Westpac customers switching to other lenders in protest at the bank’s outsized rate rise in December.

AFG would not reveal the number of customers it switched but said anti-Westpac sentiment pushed refinancing to a high for the year and made the Commonwealth Bank its largest source of mortgages, replacing Westpac.

”There are people who are fed up with Westpac and are making a stance,” the AFG sales manager, Mark Hewitt, said.

People did not typically think it worthwhile to change lenders if their rate exceeded the market by 20 basis because rates could change again, he said.

”But in this case people are making a protest. It’s hard to switch banks but when you feel strongly about something you tend to endure a bit of pain to get your point across.”

Westpac disputed the AFG analysis. A spokesman said growth in new lending remained strong. Asked why it should remain strong when Westpac’s rates were well above those of other lenders, he said the bank offered a good discount to ”premium customers” and other benefits such as no credit card and account-keeping fees.

Westpac had not noticed an ”abnormal level” of refinancing last month. AFG might merely have been logging more inquiries from disgruntled customers.

Westpac’s decision to increase its variable rates by 45 basis points, compared with the Reserve Bank’s 25-point rise has opened the biggest gap between the rates of the big banks.

A National Australia Bank mortgage is now 0.27 points cheaper than a Westpac one, representing a saving of $50 a month on a $300,000 loan.

The consumer group Choice said the move by AFG customers was welcome, but only a start. ”There’s a public appetite for switching and some pioneers are already doing it. But they are going to be necessarily small in number until it is made easier to switch and borrowers know the interest differential will be maintained,” a spokesman, Christopher Zinn, said.

Customers who want to switch to banks with which they do not already have an account will need to prove identity, using documents such as driver’s licences and passports. They will also need to produce bank statements and group certificates to establish savings and earnings records and obtain or pay for a property valuation. They will need to provide other documents on request, such as rates notices and child support agreements.

Mr Zinn said: ”It needs to be much simpler in terms of the costs and paperwork. The Government’s bank-switching package wasn’t enough.”

The AFG figures reveal the near death of fixed-rate mortgages, with the proportion sold by AFG falling to a record low of 2 per cent last month, down from 22 per cent two years before.

Loan volumes slid in October, November and December after the Reserve Bank’s rate rises. The average mortgage size hit a record of $414,200 in NSW.