Australian banks lost on Friday the country's longest-running court case after appeal judges in the West Australian Supreme Court upheld a ruling that ordered the lenders to pay creditors of the collapsed Bell Group almost $3 billion.
The lawsuit was filed by the creditors against Aussie and foreign banks which they claimed loaned money to Bell despite knowing it was insolvent. Bell collapsed in 1991.
Hit by the ruling are 20 lenders, made up of 17 overseas banks, Westpac, HSBC Australia and Commonwealth Bank of Australia which last week announced a net profit of $7.1 billion.
When Bell collapsed, the banks seized its assets worth $280 million, which the creditors seek in addition to interest. The appeal judges increased the amount of payment to almost $3 billion, which includes the interest, from the previous amount of $1.56 billion.
The litigation combined 87 different actions and was handled by four judges and two courts that came up with the same decision, pointed out Bell Group liquidator Tony Woodings who called on the banks to accept the court decision.
Acting Justices Malcolm Lee, Douglas Drummond and Christopher Carr even returned from retirement to handle the lawsuit because all other judges were involved in earlier litigation.
The appeal by the banks backfired because two of the three appeal judges found that trial judge Neville Own undercalculated the amount the banks should pay the creditors based on a deflated multiplier that Mr Owen used to compute the compound interest.
Despite the large amount involved, Aussies banks would likely not find it difficult to pay the creditors since their worth are bigger than the combined value of European banks. ANZ Bank also posted record profits of $4.4 billion for the nine months to June 2012, up by 10 per cent.
However, Aussie banks may need to further tighten their belts on top of cost-cutting measures undertaken including axing of jobs and freezing executive pay. ANZ Chief Executive Mike Smith announced last week that salaries of its 900 senior executives would be frozen until 2013, while it axed 1,470 jobs in the past nine months to contain cost.
Despite the policy, Mr Smith enjoyed a base salary of $3.15 million in 2011 and a total pay of $10.86 million which actually decreased because of smaller short-term bonuses.
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