BOQ revealed last Thursday it had a total lending exposure of $105 million from 319 Storm Financial clients – $20 million more than the bank’s interim 2009 cash profit.
However, BOQ has said the majority of the customers were repaying their loans and no margin loans were provided to Storm customers.
BOQ was caught off guard last week when the Australian Securities and Investments Commission (ASIC) placed the bank under investigation for matters relating to Storm one day after BOQ issued a denial over a regulatory probe.
“There is no evidence of improper or dishonest practices or conduct by the bank in connection with Storm clients; and there is no evidence that the bank has engaged in any misleading and deceptive conduct or unconscionable conduct in relation to its lending to Storm clients,” BOQ said in a statement.
BOQ chief financial officer Ram Kangatharan on Wednesday confirmed the bank had yet to make a provision for potential litigation from over 1,600 former Storm investors seeking compensation from losses after the financier was placed into voluntary administration on January 15.
“At the moment there are no legal proceedings against us. At the moment there is no liability for us to provide against,” Mr Kangatharan said.
Plaintiff law firm Slater and Gordon is preparing litigation against the bank.
One of the law firm’s principals, Damian Scattini, said there would be a series of cases against BOQ that left the bank with “huge” financial exposure.
“It’s a very large exposure that they have and they know it and we know it, but they’re just not publicly saying it,” he said.
Asked if the exposure could reach into the hundreds of millions of dollars, Mr Scattini said it was a very significant problem for the bank.
“It’s each individual’s claim and part of the relief (sought) will be forgiveness of a mortgage so that’s sort of an equitable principle.
“We want them to relinquish that mortgage on the houses because they shouldn’t have been in there in the first place.”
BOQ is expecting as much as a 25 per cent rise in its full year 2009 cash net profit to around $179 million.
Broker UBS has forecast a cash net profit for BOQ of $210 million by 2010/11 before one-off items such as litigation are accounted for.
One-off items including restructuring charges and property-related impairment charges chopped 23 per cent off the bank’s interim 2009 statutory net profit of $49.7 million.
Bad debt charges rose to $24 million during the first half 2009.
The BOQ statement last week followed an admission by Commonwealth Bank of Australia Ltd (CBA) chief executive Ralph Norris that there had been “shortcomings” in CBA’s dealings with thousands of its customers affected by the $3 billion failure of Storm Financial.
CBA and Slater and Gordon have agreed to a resolution process involving former high court justice Ian Callinan as an independent arbitrator.
Mr Scattini said he was leaving the door open to a similar process with BOQ.