The Commonwealth Bank of Australia's (CBA) decision to pay an extra $136 million in compensation to ex-Storm Financial (Storm) clients has been labelled a timely and fair act by ASIC, with the chair of the corporate regulator hoping the move will prompt other banks, with links to Storm, to follow suit.
Late Friday afternoon, the CBA and ASIC reached a settlement on behalf of Storm clients, resulting in the banking group agreeing to pay an extra $136 million on top of a previously agreed figure of $132 million.
The additional amount takes CBA's total financial compensation regarding Storm claims to $268 million.
The latest settlement figure will result in around 2400 individual clients receiving compensation of at least 55 per cent of their total loss, ASIC chairman Greg Medcraft told a media briefing in Sydney on Friday.
"This is a very significant settlement. It is actually one of the largest settlements we [ASIC] have ever achieved for investors," Medcraft said.
"The key thing about this settlement is that it's timely and it's fair. We believe that rather than having a lengthy court case that may go on for many years - many of the people who are investors are elderly - what we were trying to achieve here was something that was a certain outcome and doesn't put them through the strain of a long court battle."
As part of the briefing, Medcraft praised the CBA for doing "the right thing" by Storm investors.
"It has been a very good negotiation with the Commonwealth Bank and I really do stress that they've done the right thing and we hope that others would like to consider to do the right thing," he said.
"They [CBA] already had a compensation package, which did compensate investors for $132 million. Our view was that needed to be more and we've had very constructive discussions.
"It was always my view that it needed to be above 50 per cent, and the outcome is 55 per cent of [total] loss, which I think is a fair outcome."
Asked whether he believed the CBA's agreement could result in other banking groups involved in Storm litigation also settling, Medcraft said he could not say.
"I can't really comment. I think doing the right thing is a good thing for the franchise," he said.
"We're always open to a settlement but again it's got to be a fair outcome for those investors. I'm always happy to take a call.
"I think the message to the people that are in court with us is that I think I'm very pleased that CBA has decided to do the right thing by the Australians who are their investors, who many of them are retired and suffering great strain and stress from this."
Total losses suffered by investors who borrowed from banks to invest through Storm are around $830 million, ASIC said.
In regards to today's case between Macquarie Bank, Bank of Queensland and Storm, Medcraft said it will proceed.
"Monday's [today's] trial will proceed against Macquarie and Bank of Queensland and Storm. In terms of this [CBA] settlement, we will lodge a settlement with the court on Monday [today] with the basis of not continuing to proceed in our action against Commonwealth Bank," he said.
Commenting on when ex-Storm investors can expect to receive their share in the CBA compensation, Medcraft said it would be "fairly soon".
"There will be calculations made and they will be in contact with customers. Information is available on our website [asic.gov.au] for the investors in relation to the settlement," he said.
Under the CBA agreement, the additional $136 million will be made available to many of the bank's clients who invested through Storm, including those who participated in the CBA Resolution Scheme, the banking group said in a statement.
Slater & Gordon practice group leader Ben Hardwick said the CBA announcement would be good news for clients represented by the firm as part of an earlier resolution scheme. Slater & Gordon partnered with CBA to establish the resolution scheme.
CBA intends to contact "eligible customers" in the coming months regarding their individual circumstances and payments, the statement said.
"This agreement with ASIC has been reached without any admission of liability by the group," it said.
"Subject to the Federal Court dismissing the action, this brings to a conclusion the proceedings commenced against the Group by ASIC.
"The group will continue to defend the class action proceedings, which are before the Federal Court in Brisbane. These proceedings involve distinct factual and legal issues."
Calls to Storm Investors Consumer Action Group joint chairmen Mark Weir and Noel O'Brien were not returned by InvestorDaily's deadline.
Storm closed its doors on 15 January 2009 after being placed in voluntary administration on 12 January 2009.
