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CBA ‘clawback’ conspiracy theories quashed

The royal commission has addressed CBA’s takeover of Bankwest during the GFC, including the many “ulterior motive theories” that have plagued the deal since 2008.

CBA purchased Bankwest from its embattled UK parent, HBOS, during the height of the global financial crisis in October 2008, paying $2.1 billion for the former state bank of Western Australia.

However, one of the popular conspiracy theories is that CBA deliberately impaired Bankwest loans to claw back the amount of the impairment from HBOS under the price adjustment mechanism. This “ulterior motive theory” is often referred to as the “clawback allegation” and was dismissed during the third round of royal commission hearings in Melbourne on Monday.

Senior counsel assisting Michael Hodge QC cited two cases where the clawback theory was found to be false.

“This has also been considered by the Small Business Ombudsman. The view she has expressed in writing to the commission about the clawback ulterior motive theory is unequivocal. She describes it as false and explains that in her view, there was no capacity in the share sale deed for a clawback of performing loans which were present in acquisition and which most acquisition became impaired,” Mr Hodge said.

“Based on our own analysis, we share the views of the Ombudsman that the clawback ulterior motive theory is incorrect.”

Mr Hodge used his opening statement to explain that the price adjustment mechanism in the sale agreement was concerned with the state of Bankwest’s accounts as at 19 December 2008.

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“For an adjustment to be made to the purchase price based on the provisioning of an impaired loan, it meant that provision or further provision for the loan ought to have been made in the accounts as at 19 December 2008, but the amount of provision provided for in HBOS’ draft balance sheet in 2009 was inadequate,” Mr Hodge said.

“Merely calling it a loan after 19 December 2008 could not affect the state of facts as at 19 December 2008.”

Mr Hodge also noted that most of the complaints that the commission has seen have been by Bankwest customers about their treatment by CBA or Bankwest in respect of events that occurred after 7 July 2009 and, in fact, in 2010 or later.

“However, the clawback ulterior motive cannot have anything to do with events after July 2009 because, after that date, Ernst & Young had delivered their determination and the price adjustment mechanism had no more work to do,” the senior counsel said.

On 7 July 2009, Ernst & Young completed its determination. The result was an increase in the price paid by CBA of $26 million.

The final price for Bankwest was, therefore, $2.126 billion. The net increase of $26 million took into account price increases and decreases arising from the disputed items. Only two of the 22 disputed items related to impairment of loans.

“In summary, we have not seen any primary evidence from primary sources that support these ulterior motive theories, and their logic appears to be premised on misconceptions of the facts to which we have referred,” Mr Hodge concluded. “For that reason, they will not be pursued as part of the case studies.”

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