Finance Finance News Westpac faces more questions over loan guaranteed by pensioner

Westpac faces more questions over loan guaranteed by pensioner

Carolyn Flanagan
The nation's second biggest bank has faced another grilling at the royal commission. Photo: AAP
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Westpac bankers were unable to identify what the proceeds of a business loan guaranteed by a pensioner were spent on, the financial services royal commission has heard.

Witness Carolyn Flanagan, who appeared at the commission hearing via videolink on Monday, had guaranteed the loan on the basis of being a shareholder for the company and working for it part time.

Company searches by the bank showed she was not a shareholder nor an employee in August and September 2010 when the bank did searches.

Ms Flanagan is blind, is losing her memory, has had a number of strokes and is a cancer sufferer.

Westpac rules demand that family members guaranteeing business loans receive a “commercial benefit” for doing so. In Ms Flanagan’s case the benefit was to be delivered by working part time for the company and receiving dividends as a shareholder.

Counsel assisting Michael Hodge QC asked Westpac executive Alastair Welsh about the two income sources.

“One was wages and you knew that just wasn’t the case [that she would receive them].”

“Yes,” Mr Welsh replied.

Westpac profits
Westpac on Monday called its credit portfolio “fundamentally sound”. Photo: AAP

Commissioner Kenneth Hayne cast doubt on the likelihood of Ms Flanagan ever receiving dividend income from the company once she became a shareholder.

“How often, in your experience, would a proprietary company of this kind pay a dividend? … Can you point to any examples?”

Mr Welsh agreed it was rare.

Mr Hodge said the lack of income meant Westpac had simply relied on Ms Flanagan’s home equity to give it security on the loan without regard to her income.

“You would say it [you can’t have the loan] if you didn’t have Ms Flanagan’s house as security wouldn’t you?”

The $160,000 loan, ostensibly to buy three swimming pool maintenance franchises in far western Sydney, caused Ms Flanagan to lose ownership of her home when the borrowers defaulted.

The loan, made to Ms Flanagan’s daughter and her partner, was made to buy the business. But in documents produced by Westpac at the commission only $85,409 was used to actually buy the franchises.

A number of withdrawals for the loan account were identified that did not relate to the business, including rent. The business plan included a large shed owned by the borrowers which would be used as a depot.

But the account listed withdrawals for rent. Mr Welsh said the bank focused on the overall figures and was not concerned with the detail of the deal.

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