Storm made secret CBA deal

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This was published 14 years ago

Storm made secret CBA deal

By Stuart Washington

A SECRET deal between Commonwealth Bank and Storm Financial has been revealed as a factor behind $3 billion in investor losses.

The May 2007 deal was struck between Commonwealth Bank subsidiary Colonial Geared Investments and Storm founder Emmanuel Cassimatis, a federal parliamentary committee sitting in Brisbane heard yesterday.

Details outlined in a letter from Colonial to Mr Cassimatis said in the unlikely event of margin calls, CGI ''will work in partnership to clear the margin call''.

''This 'will work in partnership' strikes me as being nearly the nub of the entire issue,'' said Senator Brett Mason, who later speculated a close relationship with Storm may have led to a relaxation of bank standards.

The inquiry heard investors were not told individually about changes to their margin loans in the deal, which had the effect of putting a greater portion of their investments at risk.

Neither Mr Cassimatis nor the bank have accepted responsibility for the lack of margin calls to Storm clients when their investments fell precipitously last year, which would have allowed them to sell out and preserve their cash.

A Queensland police officer, Sean McArdle, who gave evidence yesterday, has said that for the want of a 30¢ phone call, he had been left with debts of $1 million.

A CBA representative is due to give evidence when the hearing sits in Sydney today, but chief executive Ralph Norris is likely to appear at a later date.

Mr Cassimatis appeared before the hearing yesterday and apologised to clients and staff.

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He compared the development of ''production line'' financial advice, offered by Storm from its Townsville headquarters, to a McDonald's hamburger restaurant.

He said this one model of advice had been appropriate for all investors and he blamed Commonwealth Bank for the ''destruction'' of his business.

''The reason Storm collapsed … was that the Commonwealth Bank, the main provider of credit to Storm and its customers, withdrew its credit suddenly, without notice and, most importantly, without justification or, indeed, the power to do so under the margin-lending contract,'' Mr Cassimatis said.

Some investors, mainly elderly, have told the committee they were unaware they would be putting their homes at risk by becoming Storm clients, which involved taking out mortgages to invest on the sharemarket.

In earlier hearings, Lorna Abdy, mother of Raymond, 29, who lives on a disability pension, said her son lost $120,000 in the collapse of Storm. Also a Storm client, Mrs Abdy and her husband now owe $249,000 on their house.

In the hearing, Mr Cassimatis said all people had been told their houses were at risk, prompting groans among the Storm investors present.

Mr Cassimatis said he did not know why CGI had not sent Storm's investors margin calls when the market fell.

''The question was, why did the margin calls not get made? I don't know why the margin calls did not get made,'' he said.

Mr Cassimatis was challenged by committee members, and was asked why Storm Financial's clients did not receive margin calls when, across Australia, 2000 investors a day were receiving margin calls during falls in the sharemarket last year.

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A disenchanted former Storm staffer, Ron Jelich, described Storm Financial as ''a wild or unrealistic dream or idea'', because it did not have the cash reserves to meet its obligations when the crash occurred.

Mr McArdle compared Commonwealth Bank's actions to the institutional corruption uncovered by the Fitzgerald royal commission into the Queensland police.

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