ComBank’s 1999 piggery whitewash

Raising 's piggery dealings at the 1999 Commonwealth Bank sparked an angry response. This piece by Stephen Mayne was first published on October 27, 1999 in jeffed.com and then republished in The Mayne Report from 2007 until January 2017, when the website closed.

Way back in 1988, then Federal Treasurer Paul Keating approved the appointment of the silver fox, Tim Besley, as chairman of the Commonwealth Bank.

Yesterday he bowed out after a glorious 11-year stint in the top job. Whilst some government-owned state-banks collapsed in the late 1980s, the ComBank was managed well and Besley deserves some of the credit for his leadership over that period.

In June 1992, then Prime Minister Paul Keating was still the ultimate controller of the bank. Afterall, the government owned 70 per cent so presumably Mr Keating was at the very least consulted before the board decided to install David Murray as managing director, replacing former central banker Don Sanders.

A year before Mr Murray was appointed, Keating was languishing on the backbench after failing in his first challenge of Bob Hawke. After an introduction from the colourful former Tourism Minister John Brown, Keating bought into a NSW piggery with a little known partner, Al Constantinidis.

The piggery was owned by Mr Brown and Mr Hatton, but for some strange reason, the Commonwealth Bank retained these two fine gentlemen as the guarantors of the business, never once pursuing any personal guarantees from the Treasurer turned back bencher turned Prime Minister.

The Commonwealth Bank helped finance the deal and subsequently became intimately involved in funding its expansion. When it got into financial trouble the debts owed by Brown and Hatton peaked at $23 million, but still the CBA did not require any personal guarantees from the PM. And don't forget, at this time the Federal Government was continuing the selldown of the bank but retained a controlling 50.1 per cent stake.

Whilst still Prime Minister, Keating apparently sold his stake in the piggery to his partner. In reality, Big Al only held it for a few minutes as it was destined for Indonesian buyers. Why the Tax Office is now pursuing Al for a $750,000 capital tax bill on this deal is hard to understand when the arrangement was always for Al to only own the business briefly and for everything to be sorted out later.

Big Al believed this structure was selected because of Keating's position as PM. However, he expected it to be resolved fairly once Keating became just another ordinary Woollahra millionaire with no obligations to run the country or pursue security agreements with Indonesia and other publicly important matters.

Unfortunately for Al, he believed Keating shafted him and that the Commonwealth Bank took Keating's side. When it all blew up, Al went to 60 Minutes with the story. Now most journalists know how fastidious defamation lawyers are and that Nine's lawyer Mark O'Brien is regarded as one of the best in the business. When O'Brien demanded evidence to support Al's claims, he kept coming back with box after box of documents.

The story had nothing to do with Nine's owner Kerry Packer trying to get Keating as the former PM has alleged and many of his apologists have accepted. What would any media outlet do if a former partner of the Prime Minister gives them boxes full of documents piecing together one of the great stories of the year. 60 Minutes is deservedly up for a Walkley Award on December 2 and in my view should win it for one of the finest stories of the year.

Now as a shareholder in the Commonwealth Bank, jeffed.com took an interest in the story. As a journalist, I dug around a bit and spoke to some of the people involved. Clearly, there were some very interesting issues about the bank's conduct.

The first question I asked at the AGM yesterday went along the following lines:

"Given that a majority of the board was appointed when Keating was either Treasurer or PM and when the government controlled the bank, could the bank explain why it never once took a charge out against any of Keating's assets, even when Brown and Hatton's debts (the piggery company) got as high as $23 million?"

I then pointed out that Commonwealth Bank shareholders had dropped $14.5 million (my mistake, it was actually $11 million) in Al when his debts were reduced from $15 million to $500,000 as part of a wider settlement. The deed of settlement between Al and the CBA apparently came down the same fax roll as the one in which Keating laid out his demands to be released from all liabilities by Al. It appeared that the bank, through managing director David Murray, played middle man in the dispute between two fighting partners.

Asked to comment on all of these matters, the imperious Besley said the question bordered on being defamatory. David Murray then largely repeated Besley's answer to an earlier question that everything was handled above board and the Attorney General Darryl Williams had decided not to proceed with a formal investigation.

I probably should have followed up with a question about the extraordinary clause in the settlement in which Al would once again be liable for the $11 million if he ever spoke publicly about the settlement with Keating. Keating and Al disagree about the source of this debt with Al claiming Keating had promised to help him pay it back at the time they bought into the piggery. It was a bit like Al saying: ''I'll buy this piggery business with you if you help me pay back this large and growing loan to the Commonwealth Bank.'' Al claims Keating agreed to this and reneged once he left office.

It remains unclear why Keating was so desperate to shut Al up and why the Commonwealth Bank agreed to such extraordinary secrecy terms? It seems we will never know and the Commonwealth Bank's board was in no mood to discuss it with shareholders yesterday.

Now these questions were based on facts that did not appear out of thin air. They were points suggested by people who had literally been through Al's many boxes of documents and were very familiar with the story.

Banks are famous for not talking about confidential customer matters but given that Al had placed boxes of documents in the public domain which raised very serious questions, the CBA should have been a lot more forthcoming with their shareholders. After all, shareholders have lost $11 million.

This story has been hanging around for nearly a decade now and still we don't have sufficient answers from all of the key players. Can anyone remember Keating answering detailed questions about it? After all, he forked out his first $430,000 for half of the piggery on May 5, 1991, which was a couple of weeks before he failed in his first tilt at Bob Hawke's job.

He then became Prime Minister on December 19, 1991, and told Parliament he had sold out on May 24, 1994. During this 30 month period, Keating and Al did a serious of extraordinarily complex deals, some of them at Kirribilli House, and the Commonwealth Bank was intimately involved at a time when the Federal government led by Paul Keating was the majority and controlling shareholder in the bank.

It was ironic that the Commonwealth Bank AGM was held at the Sydney Exhibition Centre, part of the wonderful Darling Harbour precinct brought to Sydneysiders by that ''can-do'' Keating mate Laurie Brereton, back in the days when he was minister for State Development under Nifty .

You see Laurie plays a cameo role in this tale. Keating let an associate of Brereton's, a Mr John Benson, know that he wanted out of the piggery in 1994. At first Indonesia's Salim brothers were suggested as a buyer, but Keating decided they were too close to Suharto. They certainly were close and look like being one of the few Suharto cronies to survive with a sizeable but much reduced business empire.

Benson then came up with the Soerijadjaya family from Indonesia as the buyers but the deal was structured such that it looked like Al had bought it from Keating and then later Al had on-sold it to the Indonesians. Keating's old mate Warren Anderson - the man who cost Kerry Packer more than $100 million on that dreadful Westralia Square deal in Perth - was intimately involved in negotiating with the Indonesians and merchant banker Mark Burrows also played a key role for Keating in the final disposal of the business. Al believed it would all be sorted out in the end and does not believe Keating was entitled to the $4 million profit he collected after the final settlement with the Commonwealth Bank in April 1996.

Keating certainly knew what riches were coming his way. He committed to purchase the Woollahra mansion St Kevins on October 7, 1994 and finally settled on August 5, 1996, which was four months after the final settlement with Al and the Commonwealth Bank.

Keating's great mate John Laws also comes into this equation. The former PM bought Lawsie's Berowra Waters retreat on the Hawkesbury River for $931,000 in a deal that settled on September 12, 1996, just five weeks after he settled on St Kevins. It is fair to say Keating used his $4 million piggery profit to go headlong into property and given the surging Sydney market, his $3.1 million outlay is probably worth well over $4 million now.

Ironically, Laws and Keating might also be connected in the ''Cash for Comment'' inquiry. You see Keating has consulted to mortgage originator RAMS which was one of Lawsie's sponsors. He would regularly plug RAMS until he did his notorious deal with the Australian Bankers Association. David Murray has taken the high ground on this deal claiming he wanted out but no CBA shareholders, including jeffed.com, had the stomach to raise ''Cash for Comment'' at the AGM.

I would love to know how much David Murray told the board about the negotiations with Keating. Retired Judge Andrew Rogers attempted to mediate the dispute with Keating in which Al took great issue with Keating's $4 million profit. This was derived from the final settlement which was reached between the warring parties on April 26, 1996, just a few days after Keating retired from Parliament.

The ComBank's board then got Justice Rogers to do them a report as to whether the bank had acted properly. It has not been publicly released but there have been some mutterings that Rogers would have liked to see a few more files than he did.

Besley and Murray made much at the AGM about the fact that the Federal Attorney General, Darryl Williams, had reviewed some documents and decided not to proceed with an inquiry into the piggery affair. Prime Minister was apparently concerned about setting a precedent in pursuing a former PM and was uncomfortable in not knowing where the inquiry would finish up.

Naturally, the board exercised ever so subtle pressure to discourage an inquiry and word out of Canberra is that the ComBank's Government Affairs Manager, former John Fahey press secretary David McLachlan, did a fine job for the bank. The relief at board level was palpable when it was announced there would be no inquiry. And didn't they rely on this as the ultimate defence at the AGM.

Besley was in my view overly sensitive about the matter. When Barbara Ward was up for re-election I simply asked for the chairman to reaffirm that she was not involved in any negotiations with Keating. Given that she was a former senior adviser to Keating and was appointed to the board when he was Prime Minister, it was not an unfair thing to ask. After all, Keating was simultaneously doing deals with his partner and the Commonwealth Bank and appointing one of his former top advisers to the bank's board.

Besley rudely warned that I should ''lay off those kinds of questions'' and then said that Barbara Ward was not involved. Cripes Tim, it wasn't as if I was asking about your times dealing with Sir Joh Bjelke Petersen when you ran Monier Ltd.

The Silver Fox, who looks much younger than his 72 years, then gave incoming chairman John Ralph a kind present as he arrogantly dismissed criticism of a proposed $500,000 pay rise for non-executive directors to $1.5 million. Ralph will now not need to ask shareholders for a pay rise for the next few years, which might just have inspired even more glowing adjectives to be inserted in his post-meeting eulogy about what a tremendous chairman Tim has been.

After 11 years running CBA, the oldest chairman of a major Australian company bid his farewells in what he described as ''an emotional moment''. There's no doubting Tim's performance and the decision to appoint the often cranky David Murray has also been a good one for shareholders. David is overly sensitive and hasn't got a sense of humour but he does run a good bank.

It's just a shame the Keating piggery is one of the few question marks hanging over this fine bank and the performance at yesterday's AGM did nothing to satisfy the lingering concerns.

Post script: Paul Keating's son Patrick was spotted at the meeting. Whether he is a shareholder or was proxy for his father is anyone's guess. Apparently he did not appreciate the piggery issue being raised although if he is a shareholder he would no doubt be concerned about the $11 million debt write off against Big Al.

------Ends

Six years later, Keating called to discuss the piggery situation and this story appeared in Crikey on November 9, 2005.

Paul Keating sets the record straight on piggery play

By Stephen Mayne

Paul Keating got on the blower yesterday to set the record straight over his piggery investment in the 1990s. Over 15 entertaining minutes, the former PM was happy to answer any number of questions about the piggery as he rejected this inaccurate line of mine from Tuesday’s Crikey edition:

David Murray’s own record on corporate governance and disclosure isn’t that great. Remember that $7 million bonus for ten years of good performance which wasn’t disclosed until the very end. And what about personally doing that debt forgiveness deal with Paul Keating over the piggery when Keating had personally intervened to get him appointed CEO of the Commonwealth Bank ahead of Macquarie Bank’s Tony Berg?

There was no famous Keating swearing or abuse, but his two main points were as follows:

 While Keating did reject the board’s wish to appoint Tony Berg as CEO, he never spoke to David Murray or any of the Commonwealth Bank directors about his piggery investment. All his dealings were with regular line managers.  The Commonwealth Bank got all its money back from the piggery company, Brown & Hatton, plus penalty interest.

Fair enough, we accept his point and correct the record.

Crikey then tried to get an answer to this question that went unanswered at the 1999 Commonwealth Bank AGM: “Why did the CBA never seek any security over Keating’s personal assets when its exposure to Brown & Hatton peaked at $26 million?”

Keating says that he rejected requests for his personal assets to be offered as security during meetings with CBA line officers when he was on the back bench in 1991. His reasoning was again good because the CBA had lent the original two proprietors of the piggery, who weren’t exactly high net worth individuals, $12 million on limited security at a high point in the interest rate cycle.

Keating risked some of his net worth investing in the piggery and wasn’t going to volunteer the rest of his assets as security for the folly of bank lending policies well before he arrived on the scene. Again, fair enough. The late Paul Lyneham was the source of that AGM question and Keating also contested his figure, saying that Brown & Hatton’s CBA exposure never got above $23 million as the penalty interest mounted up. Then there’s the question of Keating getting more cash out of the sale than his estranged partner, Al Constantinidis. Keating says that Constantinidis had illegally hocked his piggery shares in separate deals with Westpac and NAB, so much of his share of the settlement went to satisfying those debts.

And the 60 Minutes suggestion that Keating heavied the CBA to forgive debts owed by Constantinidis as part of the settlement? Keating says that Big Al’s involvement with the CBA was deep and complex. There was an exposure through a business called Taiwan Sugar, which was fully repaid, but the bank did reach a cents-in-the-dollar settlement over a shopping centre development in Maitland, although this had nothing to do with Keating.

Having listened yesterday and now gone back and read Keating’s big interview with Michelle Grattan responding to the 60 Minutes attack in 1999, it does seem the former PM’s case against the late Paul Lyneham and camp Packer is stronger than ever. How can you produce a massive 50-minute prime time attack and only approach the target on the Wednesday before it goes to air? Keating emphatically denies that he did anything wrong and says his record on ministerial standards is higher than John Howard’s when you consider issues like the conflicted post-Ministerial ventures of and Michael Wooldridge.

Finally, Keating said that the CBA did indeed at one point make a $4.7 million bad debt provision against its Brown & Hatton exposure, but the hairy chested lads in the credit department ended up getting all their money back, plus interest, plus penalty interest, even though the original loan was highly risky.

As Keating said yesterday: “I should have been paid a fee as liquidator in possession for getting a full recovery.”

Still, after five years of struggle, Keating did walk away with a handy $4 million, although the former PM believes he would have made much more if he’d stuck with it.