Bank Mergers Bad For Small Business
Sydney Morning Herald
Wednesday November 24, 1999
Australia's most profitable bank, National Australia Bank, has renewed its push for the four biggest banks to merge. Borrowers and customers should resist this at all costs. Not only does it lessen what little real competition there is between the big four, it gives the bank taking over the loan books the right to drastically revise previous banking arrangements between borrowers and the bank takeover target.
The case of communications and promotion agency Don Fraser Image Management (DFIM) is an interesting case in point. Fraser had a long-standing association with Lloyds Bank which granted him a $2 million loan facility so that he could set up his successful UK business in Australia. This was reduced to $575,000 when his lending manager left and Fraser pumped some of his assets from the UK plus his superannuation money into the business.
When ABN Amro bought Lloyds in January 1997, more management changes occurred, and the bank decided it wanted to get out of small business lending and suggested to Fraser, who was in the midst of establishing his business, that he refinance DFIM elsewhere. Negotiations took place but after several management changes, the relationship between lender and borrower deteriorated.
Fraser put his cash-starved business into administration last year and ABN Amro started proceedings to recover its by-now $700,000 loan. The matter is now in court because the loan is outside the jurisdiction of the Banking Ombudsman.
ABN Amro's Steven Crane said that ABN did not change any of the loan conditions, gave Fraser extra time to renegotiate the loan, found no evidence of a $2 million loan, and tried to settle with Fraser more than once, but offers were rejected.
In desperation, Fraser wrote to the Federal Financial Services Minister, Joe Hockey, who told him that the Government "does not get involved in the private commercial arrangements between banks and their customers".
"The frustration you feel that the relationship you had developed with certain employees of Lloyds was ruptured when Lloyds was taken over by ABN Amro is understandable. However, I cannot see what the Government could put in place to limit a new owner's rights to manage a newly-acquired asset. Generally speaking the new owner should be free to exercise the prerogatives of ownership subject to the obligations to comply with the law and meet any existing contractual obligations to customers.
"While I fully understand and am sympathetic with your circumstances I still believe there is no scope for government intervention."
The legal system may be the forum to sort out the dispute, but it is expensive. Fraser does not have the money to fight an international bank.
Stephen Conroy, the Opposition spokesman for financial services and regulation, says that at the first appropriate Senate committee established on banking issues, Fraser's case will make an excellent case study for the investigation of ruptured relationships resulting from bank takeovers.
In three years Fraser has gone from being a successful business man with assets, to a pauper and he blames his position on the bank takeovers. He warns that if four banks merge into two there could be a lot more small business people who find themselves in his situation. And, as Hockey has indicated, it is Government policy not to intervene on the borrower's behalf.
© 1999 Sydney Morning Herald