AU I knew the risks: Storm client tells a Federal Court in Brisbane
Property Here - Thursday, April 18, 2013
A STORM Financial client did not consider his home was at risk even though he had used it as security to borrow $1 million to invest in the stock market.
Sean McArdle told a Federal Court in Brisbane yesterday that he understood the risks outlined in the paperwork he signed in 2006.
But he said he was reassured that multiple layers of risk mitigation implemented by Storm meant the likelihood of any danger to his Sunshine Coast home was "virtually non-existent''.
Mr McArdle, a lead plaintiff in a class action of nearly 300 Storm victims alleging wrongdoing by the Commonwealth Bank, acknowledged that the size of his investment loans were "intimidating''.
In addition to the $1.08 million home equity loan from the Commonwealth Bank, he also obtained a $615,000 margin loan from Macquarie Bank.
He said he found comfort from the fact that both lenders were willing to lend him such huge sums of money.
"The biggest banks in Australia were supporting me going into this, they gave me confidence,'' Mr McArdle said.
Justice John Reeves asked whether there was any risk borrowing 80 per cent of his home's value. Mr McArdle said his financial planners said he could afford the repayments.
Bank barrister Steven Finch showed the court extracts from Storm documents which warned that the borrowings mean "you could lose your home''.
Mr McArdle said he did not believe there was a cause for concern because he had the security of unlimited sick pay and income insurance.
Yet Mr Finch noted that part of that income came from the Storm-badged index funds, which could fall in value. Mr McArdle admitted that this was where his calculations had "fallen short''.
Mr Finch also highlighted Storm documents which stressed that loan-to-value ratios above 70 per cent were "dangerous'', "difficult to manage'' and "leave room for no margin of error''.
Mr McArdle's LVR grew from 39 per cent to just over 80 per cent before his portfolio crashed in to margin call in late 2008.
Mr McArdle said he had failed to monitor the levels closely but expected Storm to do that for him.
He said if someone had warned him that he faced a real risk of losing all his assets he would not have implemented the Storm plan.
Read more: http://www.news.com.au/realestate/i-knew-the-risks-storm-client/story-fncq3era-1226623169488#ixzz2QmCajfL1