Commonwealth Bank makes $200 million settlement with Storm customers

Lawyers for clients of collapsed financial services firm Storm Financial have negotiated a $200 million settlement with Commonwealth Bank, which provided loans to many Storm clients.

The settlement, which comes more than a year after Storm was placed in administration, was negotiated by law firm Slater & Gordon and involves a set of principles that will allow CBA to deal with investors on a case by case basis.

In cases where CBA lent money to Storm clients “imprudently” by inflating the value of their home or their income, it will refund the difference between the inflated loan value and a realistic loan value, plus interest.

In cases where investors lost money when they received a margin call on their margin loan in late 2008, CBA will refund 90% of their equity, plus interest.

Slater & Gordon lawyer Damian Scattini said the settlement deal was “expeditious, equitable and transparent” and would allow former Storm clients to avoid costly and lengthy legal battles.

CBA chief Ralph Norris said in a statement that the bank had honoured its commitment to “put things right where we had done wrong”.

But not everyone is pleased with the deal.

Some lawyers representing former Storm clients have urged their clients to push on with legal action in the hope of a bigger settlement.

The Storm Investors Consumer Action Group, which successfully campaigned last year for a Senate inquiry into the Storm collapse, have also given only cautious approval of the scheme.

“I suspect some of our members will accept the offers made under the framework but others will no doubt be disappointed,” co-chairman of the group Noel O’Brien says.

“This was not a one-size-fits-all situation because of the different circumstances of our members and the wide range of lenders involved.”

SICAG is urging its members to read the fine print of the CBA settlement closely and attend information sessions planned for next week in various locations in Queensland.

The Nationals Senator for New South Wales, John Williams, who worked closely with SICAG, commended the deal but also joined calls for other banks that lent to Storm clients, including Bank of Queensland, to follow CBA’s move.
“I was critical of the CBA in the early days when the bank appeared to be in denial of their obligation, but I commend them for sitting down and working through a compensation package that is now on the table.”

“I call on other banks, particularly the Bank of Queensland, to follow the lead of the CBA and come to a fair settlement with its clients who had been Storm investors.”

Storm Financial collapsed in January 2009, taking 14,500 clients down with it. The firm advised its clients to use debt – typically in the form of margin loans provided by CBA, Bank of Queensland and Macquarie Bank – to “turbo charge” their investment returns.

While the strategy worked during the market boom of 2005, 2006 and 2007, the plunge in the Australian sharemarket prompted by the global financial crises eroded the value of the client’s equity and left them holding debts that averaged $1 million per person.

The firm’s founders, Emmanuel and Julie Cassimatis were heavily criticised in the wake of the collapse but have always claimed that the problems were caused by the banks’ refusal to call in margin loans before they got too big.

Julie Cassimatis told The Australian that CBA’s settlement was an admission of responsibility.

“They should be paying full restitution at current prices,” she told the paper.