Bankwest

Bankwest

Type	Division of Commonwealth Bank of Australia
Industry	Financial services
Founded	1895
Headquarters	Perth, Western Australia
Key people	Rob De Luca, Managing Director Andrew Whitechurch, EGM Retail Sinead Taylor, EGM Business Andrew Doyle, CFO[1]
Products	Transaction accounts Savings accounts Home loans Term deposits Credit cards
Revenue	A$752 million net profit after tax (2015)[2]
Website	Bankwest

Bankwest, previously known as The Bank of Western Australia is an Australian full-service bank based in Perth, Western Australia. Formerly a wholly owned subsidiary of HBOS plc, it was sold in October 2008 to the Commonwealth Bank of Australia for A$2.1 billion^[3][4] and operates as a division of its parent company.

Bankwest also has offices in Adelaide, Brisbane, Canberra, Melbourne and Sydney.

History

In 1895, the Government of Western Australia established the Agricultural Bank of Western Australia as a rural lender to support the State's farming industries. Despite its name, it was technically not a bank, in that it did not collect deposits from the public, its liabilities being government bonds. It was a government instrumentality that lent exclusively to farmers.

In 1945, the Agricultural Bank became a full trading bank and changed its name to the Rural and Industries Bank of Western Australia (also known as R&I Bank). This enabled it to expand its retail and commercial banking services throughout the state. In 1956 it became a savings bank, and in 1985 the first Sydney stores opened.

The bank was incorporated in 1990, and then in 1994 changed its name to the Bank of Western Australia Limited, with the trading name Bankwest, in preparation for privatisation. In December 1995, the Bank of Scotland acquired the bank, and as part of the sale agreement, offered 49 per cent of the shares in Bankwest to the public. Bankwest shares listed on the Australian Stock Exchange on 1 February 1996.

In 2001, Halifax Group (a large UK financial institution) merged with Bank of Scotland to form HBOS plc. HBOS then acquired all the outstanding shares of Bankwest, making it HBOS's wholly owned subsidiary.

In 2003, Bankwest announced the acquisition of API Finance from Australian Pharmaceutical Industries Ltd (API) for $300m in line with its industry specialisation growth strategy in the business banking segment.^[5]

Late in 2006, Bankwest announced it would be leaving their landmark tower, in favour of a new complex at Raine Square.

In early June 2008, reports began to circulate that HBOS intended to sell Bankwest.^[6]

In September 2008, Lloyds TSB bought HBOS in a deal worth over £12.2 billion. This was followed in October 2008 when, with significant problems of their own, HBOS/Lloyds TSB agreed to the sale of Bankwest and St Andrews Insurances to Commonwealth Bank of Australia (CBA) for an initial purchase price of A$2.1 billion.(Refer Share Sale Deed)

Forthcoming Royal Commission and Class Action concerning the BankWest Commercial Loan Book

Background

At the time of acquisition BankWest was reporting to the Australian Prudential Regulation Authority (APRA) under to Basel I requirements, and under CBA ownership began reporting under Basel II Pillar 3 standardised approach requirements on 1 January 2009.(Refer the CBA 2009 Profit Announcement).

At the time both HBOS and the CBA reported provisions for remaining consideration of circa $300 million. The acquisition was completed on 19 December 2008. (refer note 14 of the CBA 11 February 2009 half year profit announcement).

The BankWest performing loan book as at 18 December 2008, had a value of approximately $57 billion, $18 billion of which were S&P (Standard and Poors) rated B+ or worse.(Refer the BankWest Credit Policy, the BankWest 2008A financial statements and the CBA Answers to Questions on Notice to the Parliamentary Inquiry(PJC)).

As at 18 December 2008 BankWest owed its Parent HBOS a net figure of $21,076 million, and HBOS had secured a further $3,767 million loan from the RBA (Reserve Bank of Australia) to support the funding of the BankWest loan book.

The BankWest Parent Company Funding therefore can be calculated as $17.3 billion being ($21,076 million minus $3,767 million).

On Completion, the the CBA paid $14.513 to HBOS and $3,767 million to the RBA leaving a loan from HBOS to the CBA of $2,797 million called the Excess Facility Amount loan.

BankWest's Wholesale Funding and Tier 1 Capital Requirements

Under the standardised Basel II approach the Tier 1 Capital holding requirement for S&P B+ loans increased from 8% to 100%, increasing BankWest's Tier 1 Capital holding requirements from approximately $3.2 billion to $20 billion (a $17 billion increase).

HBOS was desperately trying to sell BankWest because it did not have the ability to replace BankWest's wholesale funds as they became due nor could it raise the extra $17 billion in Tier 1 Capital required by 1 January 2009 to meet the Basel II regulatory requirement.

The CBA however was in a similar position as HBOS, At the CBA 2014 Annual General Meeting (AGM) in answer to a question by Mr Francis Gilbert the CBA chairman Mr John Turner admitted that the CBA at the time the CBA bought BankWest it was not able to replace the BankWest wholesale funds. He stated:

“If you think back to 2008-2009, when all this occurred and you think about the executive of the Bank the top of the Bank they were deeply concerned that the Bank continued to exist....It was the time when wholesale funds for banks were almost impossible to obtain, it was the time when the Commonwealth Bank bought BankWest because Bankwest was in an awful lot of trouble........ and the board had auditors in to every meeting to ensure just to ensure that we came through this financial crisis satisfactorily right through to 2010” .

The CBA Strategy

Mr. Ian Narev the current CBA CEO was "Group Head of Strategy, with responsibility for corporate strategy development, mergers and acquisitions and major cross- business strategic initiatives. He led the Group’s $2.1 billion acquisition of Bankwest in 2008", and developed the strategy outlined below.

The Share Sale Deed provisions provided the CBA at clauses 4 & 10 with price adjustment provisions. The Warranty Clauses are, 15.1, 15.3, 16.1, 16.2, schedule 6 cl 5.1 and clause 12 (c) of the Share Sale Deed provided the CBA with a $4 billion short term loan in support of the Warranty Clauses. (Refer the Share Sale Deed and the December 2015 CBA testimony to the PJC).

The warranty provisions of the Share Sale Deed, enabled the CBA to deduct amounts from the HBOS $2,797 million loan it had secured (refer above), for pre acquisition BankWest loans it (the CBA) deemed retrospectively impaired.

BankWest operated under its own banking license until 2012, and the CBA had planned to operate BankWest under its own (CBA) license and extend to BankWest its Basel II advanced accreditation by 1 October 2012.(Refer the CBA 2009 and 2012 Profit Announcements and Results presentations).

Had the CBA kept the BankWest Commercial Loan Book, it (the CBA) would have faced a $49 billion increase in, recurring interest costs, and regulatory and capital holding costs.(Calculation estimate).

From the outset, the CBA made no attempt to capital raise the extra $17 billion in Tier 1 Capital (Share Capital in the case of BankWest).

Instead the CBA only raised $2 billion in payment of BankWest's existing Share capital (the Initial Purchase Price).

In avoidance of raising the extra $17 billion in BankWest Tier 1 Capital, BankWest under reported the BankWest Commercial Loan Book by $10.3 billion, in its first Basel II Risk Disclosure dated 31 march 2009.

The CBA then proceeded to unconscionably write off 1,958 loans having face facility values of $17.9 billion in BankWest pre acquisition Commercial Loans, an average loan value of 9.15 million per loan.(Refer the CBA Answers to Questions on Notice to the PJC, the BankWest 31 December 2008 financial statements and the Share Sale Deed, the BankWest Risk Disclosures and the CBA 2010 and 2011 Results Presentations, the 20 April 2009 Dispute Notice).

In a recent supreme court case in NSW, the CBA admitted that this alleged conduct (should it be proven in court) is fraudulent and is the worst conduct imaginable levelled at an Australian Banking License holder.

At the 2 December 2015 PJC inquiry hearing, the Honourable Phillip Ruddock offered for the CBA to accept the appointment of "Independent agreed mediators" to determine the facts and circumstances relating to the impairment of the BankWest Commercial Loan Book, as opposed to the establishment of a forthcoming "Royal Commission". The CBA refused.

An information Memorandum, contemplating a $100 billion class action against the CBA, on behalf of the BankWest Commercial Loan Book Victims is presently under review.

Provided products and services

Bankwest offers a full range of banking products, including loans, credit cards transaction and savings accounts.

In 2007 Bankwest launched the Bankwest Regular Saver account for individuals.^[7]

In 2012 Bankwest launched the Student Edge Debit Card linked to their Student Account.

See also

• Timeline of banking in Western Australia

Sources

• Spillman, Ken (1989) Horizons: A History of the Rural and Industries Bank of Western Australia. (Perth: University of Western Australia Press.)

References

External links

• Official website of Bankwest