During the fourth round of royal commission hearings, Bradley James, the regional manager for Queensland at Rabobank, turned to the Brauers while on the witness stand to express “regret” for the behaviour of the agribank’s staff, who reportedly pushed the family into loans that fell outside serviceability in order to meet his sales targets, as well as the bank’s “unfair” loan terms.
“On behalf of personally myself, and on behalf of Rabobank, I want to express regret about how this transaction has unfolded — and I sincerely mean that. I wish you well,” Mr James said.
Case study background
Wendy and Adrian Brauer became customers of the Dutch bank in May 2005, taking out multiple loans, which they reduced to $450,000 prior to moving to the US, Mrs Brauer’s home country, in March 2009.
Their Kia Ora farm was meanwhile leased to another family, with the rent being the Brauers’ primary source of income, allowing them to maintain their loan repayments while overseas.
Shortly after they relocated, the Brauers received an “unsolicited” email from their bank manager about the potential sale of another farm, Jamberoo, which was close to Kia Ora, according to counsel assisting the royal commission Rowena Orr QC.
The bank manager informed the Brauers of the size of the block, the number of cattle breeders that could be run on it and the estimated sale price of $4 million.
Mr Brauer flew to Australia to inspect Jamberoo and decided to move forward with the purchase.
The bank manager suggested they apply for a loan that was larger than they needed, as they would be able to use the surplus to restock Kia Ora and Jamberoo when they returned to Australia.
However, their Kia Ora property was affected by severe floods that hit central Queensland in December 2010 and January 2011, and the lease was subsequently terminated by the tenant due to loss of crops.
This left the Brauers in a “very dire” financial situation, requiring them to draw the $300,000 that they were promised would be available when they decide to restock.
However, reportedly unbeknownst to them, borrowing the additional $300,000 would require the Brauers to pay back the outstanding $3 million within two years (by June 2013).
Mrs Brauer testified she was “frightened” and “panicked” when she learnt of the condition from her husband, and then was “mad, because we’re farmers”.
“Our business is farming. That’s what we’re good at. Their business is money. And I trusted them,” Mrs Brauer said in her testimony.
She recalled signing the document that had the condition stipulated in it but felt “desperate” at the time due to a lack of working funds.
The Brauers were unable to meet their repayment obligations, telling Rabobank that they needed additional time to sell their property to cover the amount owed. The bank granted a 12-month extension to repay the loan (by 30 June 2014), but the Brauers were still unable to raise $3 million in time.
The day after the extension expired, Rabobank started charging default interest, which was 4 per cent higher than the ordinary rate, resulting in the family accruing more than $115,000.
In October 2014, the bank transferred the Brauer file to asset management and the family were entered into a debt mediation process. This eventuated in the bank agreeing not to take enforcement action and reimburse the default interest on the basis that the Brauers sell Jamberoo for at least $2 million by the end of 2015 and repay $4 million by June 2016.
“They put us backwards. They came hunting for us. They came looking for us to buy this block (Jamberoo). And 12 months later, they wanted us to pay them back more than we had borrowed. I don’t understand,” Mrs Brauer said in her testimony.
The Jamberoo property was eventually sold and the debts were repaid. However, Mrs Brauer lamented that the family lost $1 million in the process and she suffered clinical depression.
“It nearly wrecked us,” Mrs Brauer said.
“I was depressed, clinically so. I was mad. I’m still mad. I’m really mad… We trusted these people because that’s their business.”
“Conflicts of interest”
The counsel assisting the commission pointed out issues with Rabobank’s dealings with the Brauers, including conflicts of interest, potentially problematic sales incentives and “inconsistent” communication about serviceability.
The bank manager that had contacted the Brauers about Jamberoo was also assisting the owner of the property, Tom Campbell, as well as the Wrights who were interested in purchasing another portion of the land, Ms Orr said.
Mr James agreed that the bank manager’s involvement with every party in the transaction demonstrated a conflict of interest.
Ms Orr further noted that the bank manager’s actions violated its own policy (established in November 2006), which required that bank staff “ensure that all parties are being treated evenly and appropriate disclosures are made”.
Rabobank acknowledges “unfair” treatment but defends sales incentives
Ms Orr questioned whether the bank manager’s behaviour was driven by the sales incentives established by Rabobank, noting the KPIs that require staff to achieve certain targets, such as “gross lending for rural loans of $15 million” a year and “net lending of $12 million” a year.
Mr James clarified that the Brauers had expressed some interest in acquiring property with the bank manager and so, while staff are “not encouraged” to advise on potential real estate opportunities, especially since the bank operates on a “no-advice model”, he defended the incentives in place.
“I do understand the difficulties that Mr and Mrs Brauer experienced as a result of how those actions may have come about, but in terms of us having objectives for managers to lend to increase the business, I have absolutely no problems with that whatsoever,” Mr James told the senior counsel assisting the royal commission.
He ultimately admitted that Rabobank’s conduct breached clause 2.2 of the Code of Banking Practice in that its actions were unfair and below community standards and expectations.
Mr James said that the bank manager’s “intention was consistent” with Rabobank’s mission statement of being a “socially responsible bank” but that “the execution may not have been”.