Journalism and media | Freshlyworded

I never thought I’d find myself laughing (in a cynical fashion) at a press conference on a Friday evening just before clocking-off time for the weekend (I was grumbling when I picked up the phone).

But that’s what happened when I tuned in to listen to ASIC chief Greg Medcraft tell the media the Commonwealth Bank had done the “right thing” by agreeing to increase its payout to Storm Financial investors by $136 million taking the total compensation to around $270 million.

Briefly, Storm Financial provided bad financial advice to mom and dad investors on a variety of mortgage and other investment vehicles, the Commonwealth Bank provided them the money, then the GFC hit, Storm went bust and investors lost billions.

The agreement between the Commonwealth Bank and ASIC was reached “without any admission of liability” by the bank.

Enter Business Day journalist Paddy Manning who asked Medcraft if it were not a “nonsense” that the Commonwealth Bank was agreeing to pay out investors to the tune of $270 million, while at the same time admitting no fault.

Medcraft did not enter into a debate on this point – probably he was legally prevented from doing so – but I bet he privately agreed.

Which is also why I found myself laughing (cynically), because yes it really does sound absurd given the scale of the payout.

The use of the words “without any admission of liability” is a fairly common legal term and has been used by other organisations – from church groups to big businesses – to protect themselves from further financial claims.

It is usually always the outcome of a mediated solution with aim of bringing costly legal proceedings to an earlier end.

Essentially it’s like a plea bargain – privately you admit you’re guilty and stump up the money, but publicly you keep your reputation.

It also means the “guilty party” does not have to make any sort of apology, as this would, in effect, make the “without liability” clause null and void.

Most recently agricultural chemicals supplier Nufarm agreed to pay shareholders $43.5 over allegations the company failed to keep them informed of the impact of the declining glyphosate market on its business. Despite deny the allegations, Nufarm paid up without admitting liability.

In 2004, as reported by The Age, the Salesian Order of Catholic priests and brothers paid around $80,000 to a to a Melbourne man who launched a civil case against convicted paedophile Father Frank Klep “without any admission of liability”.

In 2005, retailer Barbeques Galore and a sister company surrendered about 900 BBQs for destruction and agreed to make payments for 2,200 they had already sold after legal action was threatened by Danish homewares firm Bodum, reported The Sun Herald. The agreement was made with “without admission of liability”.

And back in 1996 a Sydney hospital settled a case involving a woman who died soon after being admitted “without admission of liability”.

Clearly there are some benefits for those who seek compensation. They get an early payout and can get on with their lives, or at least try too.

As for the payee (or guilty party) – they get to draw a line under the whole affair.

For those Storm Financial investors who invested via a Commonwealth Bank loan they will have to be content with 55% of their money being repaid four years down the track.

But I wonder how many investors, would have hoped for a lot more – and an apology?

An interesting piece I filed for Property Observer.

In a nutshell, Westpac has taken Broken Hill and Kalgoorlie– to remote mining towns synonymous with mining – off a list of what the bank calls “single industry” towns and making it easier for investors to get a loan.

The bank is saying, these towns are no longer just mining towns, they offer more and are hence not reliant on mining to keep up the demand for accomodation and keep property prices and rents buoyant.

(All the policy details are in the story by the way).

At the same time the bank has added a number of other mining towns in WA and Queensland to its list of “single industry” towns effectively ruling that it is a far more risky to buy an investment property in places like the Pilbara, than somewhere like Geelong or Bendigo, where there multiple industries driving the local economy.

There are some mining towns were property prices are rising at something like 30% a year and with investment yields around 16% (the average is around 5%).

What you have to keep in mind is that most of these towns are heavily subsidised by mining companies, who pay most of the rent for their workers.

I had a search through the census 2011 data and found that in another mining town – Moranbah in Queensland – rents are around $80 per week – that’s because they mines are paying 90% of the rent.

We’re talking thousands of dollars a week to rent a plain, often ugly house in a non-descript, dusty town that would be lucky to get $200 a week on the outskirts of Melbourne or Sydney.

Here’s an example. $3,000 a week for this depressing little number, with no garden out front and as much charm a warm glass of beer.

Of course were the mines to pull back their activities, there’s no way anyone would pay $3,000. It’s an entirely artificial price.

Now, the risks of the mining boom going bust are small, but not insignfiicant, given how reliant we are on China demanding our coal and other natural resources.

And remembering that the growth of Chinese economy has slowed down of late.

But this risk, albeit a smallish one, is being reflected in banks’ mortgage lending policies.

Westpac are not the only ones not keen to lend in these riskier locations, and property investors should be wary too!