CBA to go direct on margin calls
The Commonwealth Bank of Australia (CBA) will change its notification process for margin calls in response to the communication breakdown suffered by Storm Financial clients, CBA chief Ralph Norris told a parliamentary inquiry last night.
Norris and other CBA representatives appeared for the final hearing of the parliamentary joint committee inquiry into the financial services, partly created in response to the collapse of Storm Financial.
Norris said the bank would now notify both financial intermediaries and clients of any impending margin calls, rather than communicating through a client's financial adviser as it has in the past. This is despite Norris acknowledging the Storm situation was an anomaly.
Storm Financial was one of 7,000 relationships CBA had with financial planners and financial planning dealer groups for wholesale margin lending offers.
The bank said the process of notifying a client's adviser of a margin call had worked well in respect of all other dealer groups, even under the duress of higher numbers of margin calls during the market dislocation.
CBA legal counsel David Cohen said while there were more than 2,500 margin calls made to Storm Financial in the last quarter of 2008, there were more than 16,000 made over the same period to other dealer groups.
During the hearing, Cohen called for the bank's new process to be introduced as part of the new consumer credit laws governing margin lending.
"If the legislation is going to go this far, why not take the next step, to be perfectly frank, and mandate it?" Cohen said.
But the CBA's representatives acknowledged using financial intermediaries in respect to margin calls did have a positive influence. CBA's Ian Narev said the choices a client could make in response to a margin call were many and complicated, and the wrong choice could prove costly.
For example, where a client posts more collateral to meet a margin call, effectively doubling down, they might end up in a far worse situation if markets continue to fall, Narev said.
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