BOOM AND BUST
Standing on the ridge overlooking the dusty plains, the ANZ boss looked out of place next to the brewing billy tea.
Mike Smith was indeed a long way from home. The chief executive of the Melbourne-based banking giant had previously had little reason to visit Carisbrooke State at Winton, halfway between Mount Isa and Longreach in central west Queensland. The akubra on his head was pristine. There was no salt starched onto the brim. It appeared to have been plucked off a mannequin just hours earlier.
Smith had flown more than 2000 kilometres to outback Queensland as part of a public relations stunt. He was there to apologise to 81-year-old farmer Charlie Phillott, who had been forced off farmland that had been in his family for fifty years until ANZ seized the property during a drought in 2014.
The story of the Phillotts was symptomatic of tales being told by thousands of other farmers across Australia following the GFC, but the publicity attached to Phillott’s own personal turmoil provided one of the key turning points in driving the National Party to push for the banking royal commission.
On his land, Phillott had run a successful cattle and tourism business until struck by a prolonged drought in 2011. The family took out a $1.5 million loan with the agribusiness lender Landmark in 2008 to consolidate their debts. Then, in 2009, ANZ rushed into a takeover of the Landmark business, paying $2.4 billion to acquire the rural financier and in doing so becoming the second-biggest agribusiness player in the Australian market.
But the takeover—at the peak of the GFC—coincided with a sharp increase in deteriorating loans on Landmark’s mortgage books. When the drought hit, it served only to exacerbate the number of borrowers falling behind on payments, and many of those borrowers soon slid into technical default. In a bid to shore up its own standing, ANZ went about revising down the valuations of the farmland on its books. This resulted in ANZ slashing valuations at the worst time for the market.
The bank halved the value of Phillott’s plot, erasing the family’s equity entirely and putting them in technical default despite the farmer never having missed a payment on his loan. The bank then doubled its interest rates, and Phillott continued to pay until he couldn’t anymore. He was given just fifteen days to leave his property by ANZ when the family farm fell into distress.
It was a situation being repeated countless times across drought-stricken Australia. By 2013, $722 million worth of Landmark loans—a total of 1050 loans—were impaired or considered high risk, and the bank ended up forcing 162 farmers off their land.
When the scandal became public, Mike Smith decided to intervene. He had grown up at an English boarding school and was better known for collecting Aston Martins and Jaguars, and yet here he was, uncomfortably grasping an enamel camping mug, apologising to Phillott in front of 60 Minutes cameramen.
Weeks earlier, the news crew had flown Phillott down to the bank’s Melbourne HQ for a surprise visit to Smith. In front of the cameras, the company’s chief spinner, Stephen Ries, had to inform the farmer that Smith was not there that day.
‘I really apologise for what we put you through,’ Smith told Phillott. ‘It’s not been our finest hour, I don’t think. And sorry I wasn’t there when you came down to Melbourne. I felt we had not covered ourselves in glory, to be perfectly honest. I think there was quite a bit of fault on our part.’
While the Phillotts eventually got their land back with the apology from Smith, thousands of other farmers were not as lucky. And for the banking sector, the damage had been done. Farmers already viewed the banks with a jaundiced eye, but as the stories of roughshod bankers tipping farmers off their land spread throughout regional Australia and over tea and scones at Country Women’s Association meetings, opposition to the sector only soldified.
Soon, politicians began to take up the cause. Independent MP Bob Katter attached himself to rural bank customers who had been foreclosed upon. One Nation senators also jumped on board, and by early 2017 the minor party had set up a small parliamentary inquiry into farm lending; short-tenured One Nation senator Rod Culleton had personally been foreclosed on by a bank. The Nationals also took up the fight, wanting to flush out the truth of what had been an industrywide practice to push farmers into default and sell off their land at miserable prices when times were tough.
The big four banks dominated the rural lending sector, but it was not their speciality. Agribusiness customers were a different beast to the suburban mortgage holders the lenders were used to dealing with. Rural debt, covering 130,000 farm businesses, amounted to about $60 billion in 2018—equal to the value of Australia’s gross annual rural production—and the big four banks hold 96 per cent of this debt.
While the big four controlled the market, the royal commission revealed that they did not understand it.
For many farmers, their property is not only a business but an inter-generational home, one that is subjected to years of drought, moments of devastating flash flooding, and a fickle, unpredictable environment of volatile farmgate prices in which each move can threaten to make or break the whole operation. It’s also a world of isolation. When intergenerational farming land is taken out of the hands of a family, what follows are divorces, suicides, drugs and violence. Many farmers never get over being forced off their land.
They also don’t trust bankers from the big smoke who come onto their country and make out as if they understand the struggles of the land. ‘These people have no idea,’ said Queensland senator Barry O’Sullivan, a former grazier and a proponent of the banking royal commission. ‘They undo their tie, take their crisp white shirt and fluff the collar, and then go out west to manage a complex circumstance of properties that are in drought,’ he told parliament as the commission geared up to examine rural finance. ‘They honestly would not know the difference between a mulga bush and a Christmas tree, and yet they’re sent in to try and keep thousands of stock alive.’
It wasn’t always so antagonistic between farmers and bankers, but over the past few decades, the relationship had undergone a dramatic shift. The changes had come in slow waves, but each one was a new plague forcing farmers to change the way they worked and lived.
In the 1980s Australia opened itself up to the world, making its agricultural markets accessible to the rest of the globe. With that opening, farmers were suddenly vulnerable to sharp changes in global commodity prices. Deregulation, such as scrapping the centralised Australian Wheat Board, meant farmers could no longer control volatile prices. Instead, they were expected to buy financial products that could help them hedge against such price movements, which meant more trips into town to meet with branch managers who were selling increasingly complex products.
As international markets developed, the banks then needed to find funding to buy new technology or to expand their landholdings to compete with the advent of factory farming. American farmers were told by Richard Nixon’s secretary of agriculture in the 1970s to ‘get big or get out’. Australian farmers were now in competition with these US farmers, and found themselves needing to get bigger, and to fund that expansion through the banks.
This situation was mostly uncontroversial when Australia’s banking sector was less concentrated. Smaller, regionally focused lenders were staffed with bankers who came from farming families and understood the vagaries of agribusiness finance, the unpredictable economic and environmental cycles, and the risks that were present when lending against them. Years of healthy crops can be followed by seemingly endless drought, only for the climate to bounce right back again.
While farmers were adapting to their new way of life with their lenders, the big four banks were increasingly salivating over the prospect of the growing farming market. Looking to increase market share and search out new sources of profit, the city-based banks turned to the bush. But while they made the trip out, they brought with them a lack of knowledge about how to lend to farmers. They were used to doling out generic home loans for suburban families, or signing up tradespeople with small businesses to relatively minor loans. With their borrowers having steady incomes from urban jobs, the banks could expect smooth rates of mortgage repayments.
When they came out to rural and regional towns, they figured they could run the show how they saw fit. Specialist rural lenders would no longer be staffed by bankers who could properly value land and who understood seasons. The city lenders would send junior bankers with no farming experience out to the bush to work their way up the corporate ladder.
The banking executives had looked out from their top-floor offices and seen a big expanse of land laid out in front of them. They thought it would be theirs for the taking, and started counting their chickens.
It was dubbed Project Conserve.
When ANZ initiated its takeover of Landmark Financial Services in a bid to become a ‘super regional agribusiness bank’, it made sure to do the due diligence on its target. It worked out it could acquire almost 10,000 customers and more than 100 agribusiness finance specialists across Australia, and gain more than $5.5 billion in annual turnover. This would cement the bank as the nation’s second-largest rural lender.
However, while ANZ put numerous executives to work to crunch the numbers for the potential acquisition, it was spectacularly underprepared for the aggressive expansion into the sector—it just didn’t know it at first.
At the time of the takeover bid, Landmark reassured its customers nothing would change under its new owner, and ANZ said it would soon be in touch to ease the transition. But the bank had no structures in place to ensure it could deliver on this commitment. The process was bungled from the start, and the slow drip of bad news soon started gushing into ANZ.
An independent consultant’s report from McGrathNicol told the bank it had probably paid too much for Landmark, and as it looked closer at the acquisition, the consultant told the new parent bank it needed to ensure almost all Landmark’s experienced bankers came along during the transition—otherwise, a great deal of expertise would be lost.
Farmers trusted their specialist bankers, who knew intimately how a family business was run. ANZ would need their expertise to ensure the loans complied with the bank’s new risk procedures when it took a scalpel to examine the quality of the loan book it had just purchased. However, only two-thirds of Landmark’s relationship managers stayed with the business during the takeover, and a further 10 per cent left during the first six months. They could spot an out-of-towner from a mile away, and they weren’t interested in helping ANZ get the lay of the land.
Soon, the bank found nearly half of all the loans it had just bought were not backed up with the right kind of collateral. It became increasingly disappointed with its new purchase as the sheen wore off, and it started to game-plan a way out of the mess it found itself in. Documents later revealed that ANZ executives David Hisco and Joyce Phillips suggested hiking rates on the farmers so the bank could draw in an immediate $6 million extra in revenue. They also recommended that the bank should start trying to foist wealth management products on the farmers in order to make sure it could turn a profit.
No matter how ANZ tried, it couldn’t kick Landmark into gear. The division was beset by technical issues, accounts were unable to be opened, and minor problems such as incorrect interest-rate charges plagued customers. McGrathNicol soon warned ANZ that in order to cover the expected cost of defaulting loans, it would need to set aside four times more capital than it had first prepared for. Almost half of the loans in the Landmark portfolio were given a poor credit-rating grade of D, E or F.
The timing for ANZ was already bad, as it had bought Landmark just as the GFC hit, but it worsened when, in late 2010, floods swamped Queensland. To top it off, the Gillard Government banned live cattle exports in 2011, which sparked an immediate and unresolvable oversupply of beef in the Australian market. The farmers had no one to sell their cows to, and prices for livestock plummeted.
Stupidly for ANZ, it hadn’t even bothered conducting stress tests of the loans on the books of the Landmark acquisition before it bought it in 2009. And soon after the takeover, about a third of the loans became impaired or were considered to be at high risk of imminent default.
To save its own hide, ANZ cracked down on the farmers with a ruthless vigilance.
Steve and Janine Harley in Western Australia, whose family had owned their sheep farm for more than a century, were given just one day by ANZ to vacate their property after their debt fell due. The letter from the bank telling them to leave came just a few weeks after Steve had suffered a heart attack.
The Harleys attempted to pay down $1.6 million worth of their $2.5 million debt before the deadline, and asked for an extension so they could take advantage of spring sales, when the prices they’d get for selling their land would be better. ANZ wouldn’t allow it, and engaged administrators who forced the family to sell all of their nine properties, including their home and their sheep. The receivers then hocked the properties for 30 per cent less than they were worth, almost $600,000 below a recent valuation. When those sales left the Harleys with debts of more than $300,000 to ANZ, the bank threatened them with bankruptcy proceedings.
Then there was Queensland cattle farmer Elizabeth Handley, whose properties had suffered through fire, flood and drought. When she and her husband, Roderick, asked the bank for a brief reprieve as she had just had been diagnosed with breast cancer, ANZ refused.
ANZ’s hands were not clean in this case: the Handleys had been duped by the bank. Their loan files revealed ANZ managers had falsely witnessed signatures for the loans, overcharged fees and default interest, failed to extend a promised overdraft, and incorrectly bounced Elizabeth’s cheques because of the bank’s own system failures.
Victorian farmers Arthur and Rhonda Cheesman were among the other thirty-plus farmers to complain to the royal commission about their treatment by ANZ after the Landmark takeover—the most submissions received on any single scandal examined by the inquiry. The Cheesmans, third- and fourth-generation farmers, had been forced to sell three farms, including one of their homes, along with tractors, cropping machinery and cattle, all to get ANZ off their case as it threatened foreclosure. The bank refused to grant them extra time to sell their property, and the family lost hundreds of thousands due to the quick sales of land that had been in their possession for decades.
The Landmark acquisition was a bona fide disaster.
The bank initially resisted fessing up to the dire state of its rushed and bungled acquisition. It took Charlie Phillott visiting ANZ headquarters in Melbourne to make chairman David Gonski realise that the brand damage could spiral out of control on the bush telegraph. He ordered a thorough review of the Landmark acquisition, which would ultimately provide a valuable education for the bank. Minutes of an ANZ board meeting from August 2015, presented to the commission by counsel assisting Rowena Orr, showed that the board directors discussed a paper titled ‘Farming Segments Support Strategy’. In that meeting, which was attended by the man who took over from Smith as chief executive, Shayne Elliott, the bank considered there was ‘a lesson to be learned from the Landmark acquisition’.
ANZ had never bothered to properly do its homework before rushing into a market it never truly understood. It had gone into agriculture with great hope, and created only scorched earth.
This wasn’t unique to ANZ. The scandal was repeated across the banking sector.
The farmers who lined up to castigate ANZ at the royal commission were just a handful of the thousands who had been done over by their lender and wanted retribution. The other major banks had made the same mistakes as ANZ.
Commonwealth Bank gained a substantial agribusiness lender when it took over Bankwest for $2.1 billion during the GFC. When it inherited the business, the Perth-based Bankwest saw a big opportunity to make an expansion into farms along the east coast. But then, following the devastating Queensland floods at the end of 2010, ensuing droughts and the impact of the live cattle export ban, the bank was forced to withdraw from the market with its tail between its legs.
Bankwest was already in distress when CBA was asked to take over the business during the crisis. Bankwest had a business loan portfolio that was packed full of commercial property loans and bad debts. Under the notorious ‘Project Magellan’, CBA reviewed more than half of the loans on the new acquisition and tipped many Western Australian businesses into default. While the foreclosures angered many business borrowers who to this day complain of a wild conspiracy by CBA to take over assets it wasn’t entitled to, the royal commission could find no fault with the WA management program. CBA’s east coast agribusiness expansion, however, was rife with mismanagement.
Bankwest was established as a rural lender in 1895 by the state government as the Agricultural Bank of Western Australia. More than a century later, its new British owner, HBOS, wanted to expand into the other side of the country, where the big four banks dominated the landscape. It was this expansion that would ultimately contribute to HBOS’s unwinding as its empire grew too large and too unwieldy. All the while, Bankwest was treating its farming customers as if they were regular city-based home borrowers, plying its bank employees with incentives to sell as many loans as possible.
Mel Ruddy, a cattle farmer from Toowoomba, was one of the victims. In the space of a few years he lost one of his two farms, was reduced to driving bulldozers at age sixty-eight to pay bills, and had to watch 100 of his cattle die because he could no longer afford to feed them.
It was a Bankwest regional manager who convinced Ruddy to take a larger loan over his two cattle properties when he had originally planned to sell one of them, after the banker valued the properties at a generous $2.3 million. Ruddy signed with Bankwest in late 2011, but his farm was soon hit by a savage drought and cattle prices plunged after the live export ban. Bankwest re-evaluated his properties in 2014 at $1.65 million and deemed them outside its loan-to-valuation ratio rules. Ruddy was now in over his head, according to the bank, which forced him to sell one of the landholdings.
Ruddy fought the bank over a four-year period but eventually lost his farm, known as Sunrise. As the bank crippled him, he had to cut the number of cattle on his other property, an outback station known as Arranfield in far western Queensland, because no other lender would deal with him when he needed to borrow money for licks.
The scales were tipped against Ruddy from the start, for he was dealing with a Bankwest manager who was a ‘rural champion’. The title was not because he championed his customers or because he had an unbeatable understanding of life on the land—it was because he sold the highest number of Bankwest loans to his customers as was possible. For his efforts, the banker was sent on a trip to Hayman Island after he hit 134 per cent of his sales target of $25 million. In a single year, he sold $33.5 million in loans and processed more than sixty applications, most of which were for new clients of the bank. The banker, who couldn’t be named for legal reasons, also scored a bonus of $15,000 in 2010, and $35,000 the next year.
CBA had foisted the same sort of sales target on its branch tellers and wealth management employees in the city, where staff were pushed to sell as many products as possible in return for endless bonuses and prizes. But farming finance was a different game, and there were severe consequences when bankers tried to double their annual salary by hitting the sales targets. Indeed, there was no recognition of other KPIs: Bankwest was only rewarding sales targets. Internal documents showed that its incentive scheme from 2012 urged the company to ‘dangle the carrot and reward top performers’ for selling loans, regardless of the economic environment.
In order to garner the bonuses, the champion banker inflated farm valuations and fudged numbers to meet targets. He gave two unconditional letters of finance approval to customers when their loans had not even been approved. A number of times he gave verbal commitments that the bank would definitely stump up finance, before any formal decision was made. He also arranged and advised an elderly customer to withdraw a $350,000 term deposit ahead of schedule, and then transferred the funds to another of his customers. By inflating property valuations, he was able to steer farmers into bigger and bigger loans—but if the bank revalued the land lower, the farmers would find themselves breaking their debt covenants. It was a sure-fire way to get farmers kicked off their paddocks.
Bankwest became aware of the issues around the time the champion manager resigned in March 2012 under a cloud of misconduct. Other customers were found to have problems with him after CBA contacted his clients when his phone was handed in. The employee had even gamed the company’s bad-behaviour register, entering into CBA’s ‘Genesis’ system to reset to zero the number of ‘dishonours’ marked against him.
After the banker was ‘assisted’ out of the company, the board of CBA was briefed on the rogue employee as part of a broader investigation into its Bankwest arm. When it discovered widespread misconduct by the banker after digging deeper into his files, CBA kept mum and decided against telling other farmers who had dealt with the man about his bad behaviour.
Ruddy had never sought out this man’s services. He would not have entered the deal if the banker hadn’t personally approached him. ‘Bankwest offered such a good deal. Being an optimist, I thought I would give it a go,’ Ruddy told the royal commission.
Bankers were moving from farm to farm like locusts, stripping them of all they could, just to earn bonuses.
It wasn’t just the city banks that tried to harvest everything they could out of the farmers: specialist agribusiness lenders were also in on the act. Australia’s biggest rural financier, Rabobank, owned by the Dutch multinational bank of that name, is the world leader in food and agricultural finance. In Australia, its pay model for its bankers was beset by aggressive lending targets that wrongfooted farmers.
Grazier Wendy Brauer of Theodore, Queensland, was nearly ruined by Rabobank. She had chosen to bank with the lender for her farm, based south-west of Rockhampton, despite its higher interest rates, because it had a solid reputation for agribusiness. The Brauers ran nearly a million cattle on their farm, Kia-Ora, which had been in the family since 1974.
One day, after they had temporarily moved to the US in 2009, the family received an unsolicited email from a Rabobank employee. Although they were not looking to purchase any more land, the banker was offering them the property next to their Queensland farm. He even offered to split the land two ways, looping a neighbour into the deal. This way, the Brauers could buy the lion’s share of the property and the neighbour would take a smaller slice.
The deal was too good to resist, and they signed up to a new $3 million loan to purchase the property and buy new cattle to run on it. But it soon turned sour. In late 2010 and 2011, severe flooding devastated the region. A tenant who had been on the Brauers’ land decided to throw in the towel and did not renew their lease.
The family came back to Queensland from the US and, confronted with the dire situation, asked the bank if they could access some of their loan facility. Rabobank agreed to let them access their money, but only if they paid back the $3 million debt in just two years. This would be impossible to do after the damage wrought by the floods, and the live cattle export ban was just about to hit too.
It was not the deal they had agreed to, and the Brauers had to sell one of the properties and refinance with another bank. By the end of the ordeal, they were out by about $1 million.
‘They put us backwards. They came hunting for us, they came looking for us to buy this block, and twelve months later they wanted us to pay them back more than we’d borrowed,’ Brauer told the royal commission. ‘And to think I’d recommended these jerks to other people because they had said they were a specialist rural bank that understood the ebbs and flows and cycles of farming.’
As they sifted through the wreckage, the Brauers discovered that not everything with Rabobank was hunky-dory. It had been working on all sides of the fence during the deal. The original valuations of the farm it was offering were conducted by Rabobank, not an independent party, and the same employee was also acting for the family selling the land, not just the two neighbours buying the property.
All the while, Rabobank was threatening the banker with no bonus if he didn’t make a target of writing $15 million worth of new loans each year. By inflating farm valuations he edged closer to meeting his targets, and as the bankers enjoyed their bonuses, the farmers would be tipped into bankruptcy come the first dry spell.
The banks, it turned out, didn’t care about the farmers—they only wanted to recover their money as fast as possible. As the downturn hit, quick sales of farmland erupted across the country. Properties that had been passed down through families for generations were taken over by liquidators and sold within weeks or days for far below what they were worth.
Despite finally being able to hold the banks to account, farmers were still angry. While the banks were in the dock, the receivers were still at large. The role of the liquidators—guns for hire by the banking industry—was the missing examination from the royal commission. Hayne had been precluded from looking into why bankers took such little care in overseeing what receivers and liquidators did with the distressed farmland in their possession. The commission’s terms of reference did not include the scope to examine the industry.
It was a major oversight.
As was the case with so much before the GFC hit, Australian farming was enjoying a period of excess. Big prices were being paid for agricultural land as farmers placed bets on the prospect of significant capital gains while ignoring the fundamental ability of the land to produce decent yields for their labour and investment.
When the GFC hit, interest repayments on debt spiked and banks were no longer as comfortable to lend for long periods at such low rates. Farmers struggled through, earning just enough to get by, pay their bills and keep their land.
The final straw was the 2011 live cattle export ban the Gillard Government established after an investigation discovered that Indonesian abattoirs were mistreating cows that had been shipped to that country for slaughter. With one of Australia’s biggest export markets for live cattle closed off, farmers had nowhere to sell their livestock, and as the price of beef crashed, the value of the land they were holding plummeted. How could you sell a farm when the produce generated on the land was worthless?
As rural electorate offices were flooded with tales from angry farmers on the brink of disaster, Treasurer Wayne Swan called an urgent meeting with regional MP Bob Katter. The topic of rural debt was thrust into focus on the national stage, and banks were put on notice that Canberra would be taking a closer look at their dealings.
As farmers struggled, the receivership industry blossomed. Billions of dollars in non-performing loans were now trapped on the books of the major banks, and the lenders were drafting in liquidators for a series of rapid land sales across the country.
Liquidation couldn’t have come at a worse time. Not only was the value of the produce crashing, but there was a severe drought that was dragging the price of farmland even lower. When the situation blew up in their face, the banks panicked, appointing as many receivers as they could across the country to hock the distressed land as quickly as possible. The banks needed their money back.
Under-stress loans in ANZ’s Landmark division were expected to be ‘resolved’ within eighteen months. This meant the farmers would either have to get back to an acceptable debt position or sell their land.
As was the case with WA farmers Steve and Janine Harley, who sold their land for almost $600,000 below a recent valuation—30 per cent below what the land was worth—under pressure from their receivers, the authority given to the liquidators seemed out of kilter. Counsel assisting the commission Rowena Orr went straight to the heart of the matter. ‘Was there any reason for ANZ to think that agents for a mortgagee in possession could achieve a better price for the sale of the remaining parcels of land than the Harleys could?’ she asked ANZ head of commercial lending services Ben Steinberg.
Steinberg, who was facing his third day of examination in the witness stand at the Brisbane Magistrates Court, could respond only with the bank’s official line: ‘What we were looking for, Ms Orr, at this point in time was to bring this matter to a conclusion and certainty. They were the drivers behind this particular decision.’
As more tales of destruction at the hands of liquidators were heard, the royal commission came under pressure to examine the role of receivers in agricultural lending, even though the inquiry’s terms of reference excluded any investigation of administrators. There was a seemingly endless number of farmers complaining of repossessed farms that had been sold below market value, pushing them further into debt. It didn’t make sense for the banks to be so brash with the farmland. ‘If you appoint a receiver, a receiver will move to sale promptly?’ Hayne asked Steinberg.
‘If the receiver believes the best outcome would be to hold back a sale, I would expect a receiver to come back to us with a strategy around what the best method of realisation for that property is,’ Steinberg said.
In reality, this rarely happened. ANZ had an interest in getting the assets off its books as quickly as possible. Steinberg said holding a loan that was under financial distress attracted an additional capital charge for the bank, as was required by the regulator: ‘That capital comes to the bank at a cost.’ However, the commission could not subpoena any receivers to come to the inquiry to explain their behaviour.
The rural politicians who had fought hard to establish a royal commission were disheartened by the failure of the inquiry to really take a knife to the receivers. It was unfinished business for the senators who had helped push the government to set up the commission in the first place. During the hearings, they made a plea to expand the inquiry from Canberra. The formal motion, although passed on the voices, was ignored by the government, but it does set the stage for a further examination after a change of government. The Greens-led motion was sponsored by a variety of crossbench senators, including Fraser Anning, Derryn Hinch, David Leyonhjelm, Brian Burston, Rex Patrick and Peter Georgiou.
Labor senator Chris Ketter even said the role of external administrators when dealing with distressed rural borrowers was ‘an issue that warrants further scrutiny into the future’. ‘There are stories about rural properties being sold for half their original worth in times of drought,’ Ketter said. ‘I know that I expressed some concerns about the behaviour of valuers, and I am concerned about the inherent conflict of interest that exists with the profession of valuers.’
When the government did not alter the terms of reference to include receivers, more than 100 dispossessed farmers travelled to Canberra from every state in Australia a month later for a hearing arranged by Anning, who was then a senator for Katter’s Australian Party. Amid the political pressure, the regulators were finally forced to act. APRA said it intended to formalise in its prudential standard the requirement that land valuations be done at arm’s length from the bank, in line with international practice. ASIC said there was a ‘tension’ between an independent valuation and its usefulness to both the bank and the customer. ‘Evidence before the commission establishes that independent valuations of the farms are a significant cost, which are often charged to the customer,’ the corporate regulator said. It added that if valuations were conducted internally, it should be by a qualified person separate from the areas of the bank interested in recovering the loan.
Still, the banks bit back at this in their submissions to the royal commission. They believed they were well within their rights to value the land as they saw fit. It didn’t help that the bankers facing questioning on the stand were hopeless at giving simple answers. For example, Steinberg frustrated the process significantly, demanding to see evidence to back up each of the assertions made by Orr. James Thompson from the Financial Review joked that Steinberg was the sort of person who would ask to see a copy of his passport before he confirmed his date of birth.
By extending the time period for public hearings into rural lending, Hayne was acknowledging the intense political scrutiny on the farming finance round of hearings. Under the weight of the stories told by the farmers, he was also forced to delay an examination into natural disaster insurance. He said the commission had continued to receive information about its case studies for its examination of the farming finance sector as the week of hearings wore on.
‘That’s why as a result some of those studies are going to take longer to produce than first anticipated,’ Hayne said. ‘It’s important that they’re done and that they’re done properly. That will give us enough time for the farm finance case studies to be dealt with properly. As I say, it is very important that they are.’
With the focus on the hearings, it seemed that at least some banks were about to start paying attention to their farming customers.
A month after the farm finance hearings, NAB chief executive Andrew Thorburn took a trip out to the regional NSW town of Wagga Wagga. It was time, he thought, to try to mend some fences.
Just weeks earlier, the royal commission had been told the story of Ken and Debbie Smith, who had financed two farms in Queensland through NAB to the tune of $3.1 million. Like many others, they had been hit by droughts, plunging cattle prices and floods. When it looked like they would have trouble paying back the loans, NAB did the worst thing possible: it jacked up their interest rate to 19 per cent.
It was a procedure known as ‘default interest’. Banks across the sector were known to punish their borrowers with it in an attempt to claw back as much of a loan as possible before a farm went under, all in the knowledge that no other lender would take the risk to refinance the loan.
When the Smiths tried to enter talks with the bank, NAB told them they would leave the branch with nothing but the clothes on their back if they didn’t sign its mediation plan. All the while, it refrained from pulling the trigger on a forced sale of the land, which would have put the farmers out of their misery quickly. Internal documents showed bankers thought a fire sale ‘might not be politically acceptable’. So the bank left the Smiths paying extreme amounts of interest for years. By the end, their debts more than doubled to $8 million. It was another tale of a bank doing everything to a customer they shouldn’t have.
So there was Thorburn, making the five-and-a-half-hour drive from Melbourne to Wagga to announce that the bank would no longer be applying default interest to struggling farmers. He also announced that the bank would introduce new policies to allow farmers to use much-needed offset accounts against agribusiness loans. Farmers had been fiercely lobbying for the offset accounts for years.
The bank would also find ways to keep banking services in regional communities, Thorburn promised. NAB in particular had been hit by strong criticism for shutting down its regional branch network over the preceding decade. The bank of choice for one in three farmers, in the previous year it had closed several branches around the Riverina region surrounding Wagga. Branches were shuttered in Ardlethan, Lockhart, Grenfell, Culcairn and Barham in NSW, and Boort and Euroa in Victoria.
Even Deputy Prime Minister Michael McCormack, whose federal electorate centred on Wagga, got in on the bank bashing. He warned that there could be a rise in ransacked businesses if owners—concerned by the rising methamphetamine addiction in regional Australia—were forced to keep more cash on premises because of the banks leaving town.
Now, deeply bruised after several rounds of the royal commission, NAB was attempting to usher in a new era for relations with farmers and other customers in the bush. For Thorburn, the bank’s ties with regional Australia became personal. One of NAB’s recently closed branches in the western Victorian town of Casterton had been managed by his great-grandfather. ‘I sometimes wonder what he would think of how the banks have treated regional Australia in recent times,’ Thorburn told a community roundtable.
Until the royal commission, bankers rarely paused to think about how they treated regional Australia. And why would they? Three-quarters of the Australian population live in urban centres. For all the myth-making about the bush, Australians are terrified of the country’s big red centre, with most people clinging to the coastal fringe for fear of falling into the harsh desert interior. The banks had dominated the country just fine by targeting their products to city dwellers. In their hubris, they had believed themselves insulated from any backlash when they were pushing farmers into destitution with their ramshackle attempts at entering the agricultural market.
Angry farmers were isolated, disconnected. They were spread too thinly across the great expanse of the continent to cause too much of a fuss, the banks thought. But they underestimated the bush telegraph that connected farmers across the country and turned the collective opinion of the regions against the nation’s most powerful industry.
When Nationals politicians and regional MPs cottoned on to the discontent bubbling through their towns, they vowed to take swift action. They forced the banks to reap what they had sown.