In April 2003, King Bros, a 79-year-old Port Macquarie based bus company, collapsed suddenly with debts of $220 million. Its owners, twin brothers Peter and Tony King were arrested on charges of defrauding the National Australia Bank of $174 million from a leasing deal for buses which never existed. But a Crikey reader speculates on the role NAB played in the alleged fraud?
The King Bros had their main lending with the NAB (which won the business from the CBA), but keep its transactional accounts with the CBA. In addition to this, the directors/owners had their personal banking/borrowings with St George.
My experience in dealing on both sides of the fence is that the NAB wants to know everything about your business and especially likes to keep an eye on the cashflow. This is usually done by having the transactional accounts and lending accounts for the business under the one roof (although this is not always the case – as with King Bros).
For a bit of background on the lending process at the National, the NAB has Business Banking Centres (BBCs) which are regional offices that house a range of Business Banking Managers (BBMs) and what used to be their assistants – Business Banking Officers (BBOs). The process has changed recently, but each BBM used to work directly with a BBO. The BBM manages a portfolio of existing clients and gets new clients. The BBO prepares the credit applicants which are then either approved by the BBM or submitted to the correct level of approval authority.
Overseeing the BBMs is a Regional Executive (RE) who has no clients, but a higher approval authority than the BBMs and assists in winning the big deals.
For security clients files are normally stored in a fireproof locked cabinet/safe, but they are still easily accessed by staff so they can work on the files as needed.
In the case of the King Bros account, approval of the lending facilities appear to have been completed through the correct channels (ie. no bank officer approved something they shouldn’t have). However, unusually, the lending application appears to have been completed by the BBM and RE personally, without the BBO ever seeing the file.
In fact, even after the facilities were approved and drawn, the file was not stored with the other client files, but rather kept in the RE’s office in a locked cabinet. I am led to believe that even mundane things such as placing correspondence on the file was completed by the RE or the BBM. No other person in an office of approximately 10-15 staff every got to see the file. This appears to be a very unusual circumstance.
It’s common knowledge the problems with King Bros arose due to the fact that the NAB was advancing funds for the leasing of non-existent buses. However, in each case the BBM responsible for these clients is said to have signed off to say that he had sighted the buses and checked the VIN & Engine Numbers.
The funds were then credited to the account of the company that provided the invoice. The belief within the NAB was that this was a company that belonged to Mercedes Benz, but unfortunately turned out to be a company operated by the King brothers.
So the NAB had a situation where a file was prepared by two senior managers, keep in the office of the senior manager, and no one was allowed to see the file (even to file something on it). Nevertheless the account manager signed off to say that he had checked the VIN & engine numbers and the NAB paid the money for the non-existent buses into an account run by the Kings. All in all it appears to be quite a stuff-up.
As for the NAB staff involved, the RE (who oversaw the development of the Moree Agri-Business centre from a small country branch in to the NAB’s second or third largest Agribusiness Centre and was greatly admired by all of his staff) has been forced to take long service leave and will not return.
The BBM (remembering he signed off to say he had sighted the buses) continues to work in Port Macquarie, with seemingly no effect to his pay level or approval authority and seemingly with no concern that he may have done something wrong by the NAB or its shareholders.
Meanwhile it seems the King brothers and the NAB RE were at one time neighbours, or at least had neighbouring real estate investments. It is said the RE, like the King brothers, owned two of the four Penthouse suites in the Four Points Sheraton at Port Macquarie, with the RE owning either one of the other Penthouses or a sub-penthouse.
Prior to the King brothers penthouses coming on the market as a mortgagee sale, it is said the RE had the foresight to place his unit on the market and sell it at a very good price in comparison to the trouble the NAB had with selling the two owned by the King brothers. I guess there are only so many buyers looking for high priced apartments in the Four Points Sheraton at Port Macquarie.