The Commonwealth Bank of Australia (CBA) has agreed to cash refunds and home loan cuts for clients of Storm Financial as part of the outcomes of its resolution scheme.
Under an agreement with litigation firm Slater & Gordon, the CBA has agreed to compensation principles for more than 2000 Slater & Gordon clients who borrowed from the bank to invest in equities investments on the advice of a Storm financial adviser.
The compensation principles, to be delivered on a case by case basis, will take the form of cash compensation and or concessions including reduced loan balances and interest rates, interest refunds and in some cases permanent tenancy arrangements, a statement from Slater & Gordon said.
As part of the compensation principles, the CBA has also agreed to write off any negative equity that a resolution scheme member owes the bank on their margin loan, with any cash contribution made to the balance of the negative equity after 8 December 2008 to be refunded with interest.
Where margin loans entered margin calls in the second-half of 2008, Storm resolution members will generally receive 90 per cent of the equity they held in their portfolios on the day of their notional first margin call plus interest.
Interest payments on investment home loans that were suspended by the CBA since 17 June 2009 will also be written off for each Storm resolution scheme client who receives a proposal, even if that proposal results in a “status quo” offer.
The CBA has also agreed that investment home loans will be individually assessed retrospectively at the date the loan was provided against agreed prudent lending principles.
If it is determined that CBA has lent imprudently, any difference between the assessment and the original loan offer, including interest, will be written off the loan balance or paid in cash where there is no remaining loan.
A Storm resolution member may also withdraw from the scheme at any time with all legal rights and entitlements intact.
In addition, if ASIC secures a better outcome following the conclusion of its investigations, then the difference will also be available to the clients even if they have already accepted an offer from CBA.
The CBA is expected to begin making compensation offers this week, with all offers made to Storm resolution members by the end of May.
Slater & Gordon Group Practice Group Leader, Brisbane Damian Scattini said the compensation principles will deliver a quick, fair, transparent and commercially appropriate resolution of the claims against the bank.
“This will take into account the individual circumstances of all clients, this is not a one size fits all approach,” Scattini said.
“Agreeing compensation principles is a critical final step in delivering faster and fairer compensation for Storm victims. It builds on the innovative Resolution Scheme, established by the Bank following negotiations with Slater & Gordon last year.
“We expect that significant, in some cases life changing, outcomes will be delivered to our clients by the bank following this agreement.”
The compensation principles were negotiated between CBA and Slater & Gordon following an extensive ‘test case’ process which involved six typical claims.
