CommBank settles BankWest dispute

It is understood CommBank has received a discount on the price it paid late last year to the British bank HBOS, now owned by its British rival Lloyds. But the terms of the revised deal have not been released as the dispute had to be resolved by mediation and both sides agreed to keep the result confidential.

CommBank is believed to have claimed at least $200 million from Lloyds, which inherited the case after its takeover of the distressed HBOS group this year.

CommBank and Lloyds declined to comment.

Lloyds did not disclose the cost of the case in its half-yearly figures last week. But it did reveal in a restatement of HBOS's accounts that the troubled lender incurred a #845 million loss on the disposal of businesses, a sum thought to cover the sale of BankWest and its St Andrew's insurance business to CommBank.

The original price was hailed as a triumph for Australia's biggest bank, given that it was just 0.8 times the book value of BankWest. It was only after CommBank completed the deal and sent auditors to review BankWest's loan book that it discovered the Perth-based lender was under-provisioned, driven by its exposure to the commercial property and business sectors.

As a result, BankWest qualified its most recent financial performance, moving from a $185 million profit for the year to last December 31 to a $139 million loss because of a rise in its bad debt charge to $825 million.

According to a statement released in April announcing the mediation process, BankWest returned to profitability in the first quarter of this year.

Analysts are expecting a mixed performance from CommBank's new retail banking division when the group reports its 2009 results on Wednesday.

Profits before provisions are expected to have risen 7 per cent half-on-half, Merrill Lynch says. But the effect of the recession and a growing tide of bad debts  thought to total $1.4 billion for the second half and including BankWest's impaired charges  are likely to hold back net cash profits to about $4.3 billion.

That will be $400 million lower than last year but the market will consider it a good outcome, given that CommBank will still be among the most profitable banks in the world.