Do the big four banks have a culture problem?

Banks stand accused of engineering loan defaults

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published June 7, 2015 9:01 am AEST

Just a day after being accused of deliberately holding up an investigation into rate-fixing and currency manipulation, the banks now face another major parliamentary inquiry.

This time it's targeting loan defaults and whether banks deliberately forced some borrowers to sell up – when they had never missed a payment.

According to Fairfax Media reports, Commonwealth Bank of Australia (ASX: CBA) is at the centre of the investigation. A former senate inquiry in 2012 received more than 150 submissions from Bankwest customers that the bank had 'engineered' defaults. CBA took over Bankwest in 2008 during the global financial crisis.

Liberal senator Alan Eggleston is reported to have called for a public inquiry into CBA's behaviour,

"CBA had a predetermined outcome it needed to achieve, and it opportunistically capitalised on Bankwest's dire financial situation by manufacturing defaults on certain customers to engineer the result it wanted."

CBA has denied any wrongdoing, but the other banks are also likely to come under scrutiny. Australia and New Zealand Banking Group (ASX: ANZ) could come under the microscope for its treatment of farming families kicked off their properties, and selling the properties at ridiculously low prices. National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) aren't likely to be missed either.

Nationals senator John Williams has told Fairfax he was "extremely concerned when companies and businesses go under due to extreme pressure from the banks and financiers when they have not missed an interest payment". He was also concerned that far too many times, assets were sold on the cheap.

Property valuers and insolvency practitioners could also be caught up in the wide ranging inquiry. The liquidation and insolvency industry has been accused for years of conflicts of interests, selling assets at low prices to other clients and charging excessive fees.

Foolish takeaway

Yet another issue within the big four banks suggests there's an issue with the culture (one reason why ASIC is examining it). That can only be changed by leadership from the top. Bank CEOs need to stand up and do the right thing, be open with the ongoing investigations and inquiries, and encourage their staff to take a more ethical stance.

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