CBA Storm admission 'monumental'

25-Feb-2010 CBA Storm admission 'monumental'

25 February 2010

By Duncan Hughes - Australian Financial Review

Storm Financial founder and former chief executive Emmanuel Cassimatis yesterday said Commonwealth Bank of Australia should be preparing to pay investors $2 billion compensation, 10 times initial estimates of its liability.

My Cassimatis yesterday described the bank's admission that it was liable for margin loan losses as "monumental" and warned he personally would seek $530 million.

"Now they are admitting they are responsible for margin loans and margin calls. This is monumental," he said.

My Cassimatis, who uses Brisbane-based lawyers Russell & Company, said he would seek $30 million in personal financial losses and $500 million "for the bank's ruining of a perfectly good business".

Storm went into voluntary administration in January last year after failing to meet CBA's demand to re-pay loans, triggering losses estimated at more than $3 billion.

After months of negotiation between lawyers representing the bank and former investors, a mediation scheme, which does not preclude investors taking legal action, was announced yesterday.

Initial estimates, which the bank refused to corroborate, calculated the bank's potential liability to be about $200 million, roughly split between home and margin loans.

Financial advisers yesterday said total payments could increase by $100 million to about $300 million if siz other banks involved in the debacle joined CBA in making voluntary payments.

Mr Cassimatis, who is expected to ignore the compensation scheme and go straight to the courts, is believed to have the support of a handful of former Storm investors.

Damian Scattini, a lawyer for Slater & Gordon which negotiated the scheme, has repeatedly warned litigation could take years, with no guarantee of a better outcome.

Mr Scattini said: "Both sides will walk away with a limp." He counselled against a "litigation Armageddon".

Storm Investors Consumer Action Group, a lobby formed by former investors to win compensation, has told its members to "give it a chance". It is also gearing up for a campaign to embarrass other banks, including Macquarie, Bank of Queensland, St George, Westpac and ANZ, into providing transparent procedures and equitable payments.

Australian Securities and Investments Commission, which welcomed the CBA proposal, is believed to be encouraging the remaining abnks to adopt a similar scheme.

The regulator also said the 14 month report into Storm's collapse would be completed next month, which could open up a new legal avenue for investors if its findings are critical of the banks.

In a seperate development, Stewart Levitt, a lawyer with Levitt Robinson, has published a highly critical analysis of the compensation plan.

"CBA's offer to margin borrowers produces less than the minimum formula available to a court for the calculation of damages," Mr Levitt said.

"It has not even offered to reinstate the Storm margin borrowers fully to the position that they should have been in had the CBA made a valid margin call," he said.