When ANZ bought the $2.3 billion Landmark rural loan portfolio in 2009, about $273 million (or 12 per cent) of its loans were in trouble and the bank planned to ramp up interest rates to cover the risk, the banking royal commission has heard.
The bank was warned by consultants McGrathNicol that it had likely paid too much for the purchase. That move would have effectively made the good clients pay for the extra risk the bank was taking on.
The commission received documents showing that ANZ planned to earn an extra $6 million on the portfolio by boosting interest rates but Benjamin Steinberg, the bank executive in charge of rural lending, could not say for sure if the bank had actually implemented that measure.
“You mean you can’t tell the Commissioner if ANZ took up the opportunity to re-price the loans to the value of $6 million?” asked counsel assisting Rowena Orr QC.
“Yes,” responded Mr Steinberg.
“… Right,” replied an incredulous Ms Orr.
McGrathNicol recommended that ANZ make sure it could manage the Landmark loans by ensuring experienced staff came over with the purchase and the bank should conduct extensive due diligence.
The advisers told ANZ it needed to make sure “close to 100 per cent of the loans are independently reviewed” to ensure the loans comply with ANZ risk procedures. But only two-thirds of Landmark’s 65 relationship managers came over and 10 per cent of the former Landmark staff left ANZ in the first six months.
Mr Steinberg admitted the bank’s actions fell below community standards in terms of communication with customers, migrating them to ANZ’s systems, incorrect interest charges and poor processes in dealing with those whose loans were stressed.
Documents produced in the commission showed more than 45 per cent of the Landmark loans (by value) had sub-standard security in place in both November 2008 and August 2009.
But Mr Steinberg said that wasn’t a problem for the bank as it had lent on the cashflows of the farming businesses, rather than the value of security, in some cases. “I would prefer it [the figure] to be lower … it is telling us the security is not as strong as we would like it to be.”
ANZ’s Landmark takeover was the subject of 32 per cent of all submissions to the commission on farm banking, the largest of any case.
ANZ set up a taskforce in 2015 to review “high-risk” files of Landmark borrowers and Mr Steinberg participated in that review.
Landmark was a division of former monopoly grain-trading group AWB that provided loans to agri-business customers. ANZ’s board approved the acquisition on October 21, 2009.
In papers presented to the commission ANZ gave the rationale for the purchase as the desire to become a “super regional agribusiness bank”.
The process of mediation is well developed in agricultural banking with Queensland Legal Aid’s Denis McMahon telling the commission that between 2008 and 2018 it conducted 224 farm-debt mediations. Of those 60 were with ANZ and 53 were with NAB.