Pub loss ‘unsurprising’

A SENIOR Commonwealth Bank executive says he understands why staff thought they should force two brothers to sell their country pub even though they had never missed a loan repayment.

CBA group chief risk officer David Cohen, appearing before the banking royal commission in Melbourne today, says it was not “entirely surprising” a senior credit risk manager wanted the account closed.

Mr Cohen was responding to questions about the failure of the pub at Portland, near Bathurst, that was operated by brothers Brendan and Michael Stanford.

The Stanfords had taken out a $1.2 million loan with Bankwest – which was later acquired by the CBA – to buy the Coronation Hotel for $1.6 million in 2006, before the global financial crisis.

Mr Cohen said the business was later struggling, and its earnings and value were deteriorating.

“I would have expected Bankwest to have formed the view that potentially the only way for the borrower to be able to repay the loan was to sell the hotel and sell it sooner rather than later given the deteriorating (finances),” he said.

In 2010, the Stanfords’ relationship manager wrote in an internal email that he did not believe Bankwest should exit the account because the brothers were “highly committed” to the pub.

Counsel assisting the commission, Michael Hodge, QC, put it to Mr Cohen that during 2010, the relationship manager believed the account needed to be removed from the bank’s “weak list”.

This was rejected by a senior credit risk manager at Bankwest.

Mr Cohen said this was not “entirely surprising”, even though the Stanfords had previously run a successful pub at Cessnock, inland from Newcastle.

“I am not totally surprised that such a difference of opinion would exist,” Mr Cohen said.

The pub was ultimately repossessed and sold by receivers in 2014 for far less than the purchase price. Yesterday, an emotional Brendan Stanford told the commission how Bankwest forced the brothers out of the pub when they believed they were just experiencing the normal ups and downs of business and would ride it out.

The commission heard yesterday that the Stanfords’ loan had been moved into the bank’s credit management division without the knowledge of the brothers.

Mr Cohen conceded it was unusual clients would not be told their accounts were getting extra scrutiny. The report by the investigative accountant “observed a lack of management skill in the operation of the hotel” and a “lack of basic financial disciplines”, he said.

The Stanfords had entered into a payment plan for a debt to the Australian Taxation Office, but had not missed any loan repayments at that point.

However, Bankwest observed a “material adverse change” in the hotel’s operation, the commission heard.

The hearing is continuing.