CBA mediation scheme to settle Storm investor claims
Sydney Morning Herald
Thursday June 25, 2009
THE COMMONWEALTH BANK has taken the unprecedented step of trying to settle any individual dispute over its involvement with the collapsed financial planner, Storm Financial, through a formal mediation scheme in an effort to avoid years of costly legal action.Lawyers acting for a group of CBA customers have agreed with the bank on a system to resolve claims for what could be construed as inappropriate or badly-handled lending practices. These might have left hundreds of Storm clients owing tens, if not hundreds, of thousands of dollars to the bank as a result of borrowing against their share portfolios under the planner's reckless financial advice.About 75 CBA customers represented by the lawyers Slater & Gordon will have their cases dealt with through a pilot resolution process, with the legal and financial advice bills being picked up by the bank. A former High Court judge, Ian Callinan, has also been brought in as an independent arbitrator.In all, about 2500 of the bank's customers were caught up in the failure of Storm. Its collapse in January this year is understood to have cost people who invested through the firm $3 billion in market-related losses.Many of them borrowed money from the bank's wealth management arm, Colonial, to support margin loans to buy shares. They also took out bigger mortgages secured against their homes to underpin their stock portfolios and extra loans. Their losses were revealed as the market dropped heavily in value during the past 12 months.Yesterday's development comes after Ralph Norris, the Commonwealth's chief executive, made the surprising admission last week that the bank had made mistakes in its dealings with Storm. Mr Norris committed the bank to making good any of the wrongs which could be clearly laid at the bank's door.In a statement late yesterday announcing the resolution scheme, the Commonwealth sought to clear up confusion over an initial decision to continue charging interest on Storm-affected customers' loans once a temporary repayment "holiday" ends on August 31."We have never said this and it has never been our intention," the bank said. "We will ensure no customer will pay additional interest as a result of this payment suspension, and any customer who has been identified as being wronged by the bank will have this interest waived altogether in the overall settlement."The deal between the two sides does not prevent any of the bank's customers who may be unhappy with the result of the resolution process from taking legal action against the Commonwealth or from contributing to the ASIC investigation. It has also further isolated the Bank of Queensland, the other main lender to Storm clients, which is refusing to admit any problems with its Storm customers and is facing a class action for damages as a result.
© 2009 Sydney Morning Herald
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