The BOQ North Ward is located at the North Ward Shopping Village, corner of Eyre and Gregory Streets, in Townsville and was opened in 2004. It is owner-managed by Declan Carnes, formerly the Bank’s Townsville Area Manager, and one Mathew Buchanan (background ?)‘Best Manager’ for the second consecutive year so establishing itself as the best performing branch of 215 branches in four states and two territories.
In early 2009 the corporate regulator starting probing anomalies in information provided by the Commonwealth Bank and Bank of Queensland to Storm Financial clients. The information, records of people's home loan applications, showed inflated incomes according to Storm clients.
A spokeswoman for Bank of Queensland said: "While we cannot comment on individual customers' circumstances, our view is that we have followed our normal conservative policies and processes when dealing with Bank of Queensland customers who were also customers of Storm."
Asked if he was concerned about bank record anomalies, Bank of Queensland North Ward owner manager Declan Carnes said: "Not really."
Storm founder Emmanuel Cassimatis, stated on ABC radio that he `firmly believed' no adviser had inflated people's incomes.
Declan Carnes amassed about $10 million of industrial land, flats, until just weeks before Storm’s collapse.Declan Carnes and his wife picked up luxury real estate and large tracts of vacant land zoned for industrial and residential development between May 2006 and November 2008.
Other properties were bought in the name of the wife of Mathew Buchanan, co-owner of the branch.
The property buying spree also coincided with the peak of Storm’s success, when funds and loans under advice and management soared from about 3.6 billion to some 4.8 billion, audited annual income topped 69 million and work from across Australia was being funneled through its Townville headquarters.
Mr. Carnes, owner-manager of the North Ward branch that is less than a kilometer from Storm’s now vacated headquarters, denied the record volumes of lending by his branch were all connected to Storm.
“We would be the only owners that start at 5 am each morning and go home at 9 pm each night!” Mr. Carnes said.
“I also spent 10 years in Brisbane before setting up the North Ward branch, and I am there two to three times a month with clients. It’s all about long hours, relationships and returning phone calls.”
He said that even without the Storm lending, the branch would have out performed it nearest Bank of Queensland rival by about $50 million per year.
The branch's amazing lending performance and its links to Storm have been under review by the Australian Securities and Investments Commission and a federal Parliamentarian investigation, and are the target of a pending legal action by Slater & Gordon on behalf of aggrieved Storm investors.
The North Ward branch of the Bank of Queensland and the nearby Commonwealth Bank of Australia’s branch at Aitkenvale are both alleged to have become entwined with Storm by providing home loans to Storm clients that were leveraged to invest in storm-badged products. BOQ only provided home loans however.
Former Storm national development manager Ron Jelich said: "It is undeniable that the relationship between Storm and the North Ward branch was hand in glove. Work was coming into Storm from alI over the country and a huge chunk was going out to that branch."
Storm collapsed in January after failing to repay a loan to CBA, triggering devastating losses for thousands of former clients estimated to have topped $3 billion.
According to ASIC records, Mr. Carnes is the director of three companies Senrac Madjax and Diago. which list their addresses as his home address in Idalia, a suburb of Townville. Among them they own seven investment properties.
"There are some branches that do well, and some that don't," Mr. Carnes said. "Our business is based on relationships and customers keep coming back to us."
By July 2009 documents had revealed that the Bank of Queensland in North Ward was lending more than $20 million a month to Storm Financial at the height of its popularity. Described as being 'astonishing', by other bank managers of the BOQ, these volumes were around five times better than the head office benchmark and three to four times more than the best branches were doing in other states.
According to these bank documents this branch was estimated to be earning about $100,000 in upfront commissions a month at its peak in 2007. And some $24,000 (?) in trailing commissions w ere being paid a year.
In addition, it earned a percentage of the total loan bank income (?) from setting up the loan and related transactional account based on estimates of the bank's commission rates.
According to a report submitted to the federal parliamentary inquiry investigating the Storm collapse, the North Ward branch shifted the booking of loans around - placing some under investment and business lending categories and others into the home lending one.
A spokeswoman for the Bank of Queensland when asked to comment said North Ward’s lending to Storm clients accounted for less than 20% of its overall lending activity.
The CBA North Ward branch won many head office recognition awards, and its performance was held up as a role model for other branches in the network.
In August 2009 a draft statement of claim was sent to Bank of Queensland by lawyers Slater & Gordon. The allegations form the basis of an individual test case for other Bank of Queensland clients of Storm affected by the collapse of the financial planner.
The draft statement of claim contains a claim for damages and asks for the loan to be set aside because the contract with the customer had been breached.
Slater & Gordon were perceived to be using the statement of claim as a negotiating tool, trying to push Bank of Queensland into a similar mediation process as that adopted with the Commonwealth Bank.
In May 2010 the Brisbane Supreme Court ordered the BOQ to disclose key documents relating to lending practices in two Townsville branches which dealt with the bulk of more than 300 Storm clients.
The bank had previously refused to turn over the material from its North Ward and Kirwan branches on the grounds that it was irrelevant. The documents, which include credit risk reviews, compliance checks, audit reports and operational risk-reports were to be supplied by 15th June.
Ben Hardwick, from law firm Slater & Gordon, said "These documents may be relevant to the bank's compliance with its own lending procedures and its state of knowledge in relation to Storm's investment model."
Law firm Slater & Gordon started legal proceedings against the bank in August 2009 on behalf of retired school teacher Helen Rubin, who borrowed $184,000 against her home equity to invest with Storm in 2005 and is now seeking $400,000 in damages.
Her matter, which alleges misleading or deceptive conduct, is one of several test cases now before the courts aimed at paving the way for a class action against BOQ.
Bank franchisee Matthew Buchanan, who variously managed both branches, told a liquidator's public examination into the Storm collapse last year that he did not verify client information provided by the advisory firm.
It also emerged that the bank knew as far back as 2006 that there were numerous lending problems at the North Ward branch. But the bank still maintains strongly that there were no faults in its lending practices, even though many of the loans made by Storm Financial were processed through Townsville's North Ward branch of the bank.
The only bank that processed more loans than the BOQ North Ward was the CBA's Aitkenvale branch, and two managers there who were overseeing the activities of that branch have now been sacked.
An internal report shows the North Ward branch in Townsville made mortgages to about 260 Storm clients worth at least $110 million.
Bruce Auty, Bank of Queensland's group executive for group risk, told the Storm Financial public examination in the Federal Court in Brisbane that one of his staff called for a review of loan approvals at the bank's North Ward branch, managed by Matthew Buchanan. But two formal reviews and another three informal inquiries failed to change the way BoQ's North Ward branch operated.
He further stated that the first review in September 2006 concluded that incomes of Storm investors were routinely overstated. Applications would list 5 per cent of the expected income from total funds invested, meaning pensioners could be shown to have $100,000 earnings. Investors were not interviewed in person despite that being bank policy.
It was further revealed that it was the bank’s policy to deal only with Storm rather than contact the applicants directly if there were questions regarding their incomes and ability to meet the loans.
Mr Auty also told the court that in his opinion it was prudent to rely on a single page of income details sent from Storm to BOQ's North Ward branch because they were financial investors.''We had no reason to doubt that,'' he said.
Mr Buchanan earlier told the court that face-to-face meetings rarely took place.
Mr Auty told the court the Bank of Queensland operated by the Code of Banking Practice, but didn't know if it was on the terms and conditions of home loan documents.
The code states: ''Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.''
In addition, the ability of borrowers to service loans was identified as a major worry. That issue arose because the bank was unaware that most Storm clients also had secured multiple margin loans from other lenders to invest in index funds.
"Storm was acting as our agent for those loans. We had no reason to doubt them! A loan was made in good faith by the bank and accepted in good faith by the borrower."He further stated, “The bank provided no advice about investing with Storm and did not "coerce" anyone to tip in money.
It wasn’t until December 2008, just weeks before Storm failed, that Mr Auty was alerted to the long history of "anomalies" surrounding "credit risk review" issues at the North Ward branch. Mr Auty was then alerted to the case of Steve Reynolds, a Vietnam veteran on a disability pension whose income was listed as $100,000 Despite his limited means, he was given a "low-doc" loan which provided for few background checks. Mr Reynolds has since lost his home and was shackled with a $420,000 debt from his BOQ home loan and a margin loan.
In January 2009 the court heard that BOQ cancelled a planned independent audit of its Storm exposure and terminated a credit risk study in part because it faced a class action from law firm Slater & Gordon, which represents about 300 bank clients.
North Ward co-franchisee Matthew Buchanan told the court that by June 2005 he had already written up to 40 loans for Storm clients, but he had ''no idea'' what investment model Storm used. Therefore, he was not aware that Storm's investment model relied on high-risk double gearing.
Mr Buchanan also said he relied on a Storm client profile to make a home loan to a woman who allegedly had $90,500 in cash In fact, the court heard, she had just $35,000 available in two BOQ accounts.
Mr. David Liddy, the former CEO and Managing Director of the BOQ stated before the Parliamentary Joint-Committee that the relationship between Storm and the BOQ North Ward was the same as any other. Clearly, this was not so! The facts speak for themselves.
THE ACCUSED >