State Bank of South Australia

For the earlier business (1837–1892) with a similar title, see Bank of South Australia (1837).

The State Bank of South Australia was a bank owned by the Government of South Australia. It was created in 1984, collapsed in 1991 and became the subject of a Royal Commission in South Australia. The surviving part of the bank now exists as BankSA.

History

1980s

The bank was expanded in 1984 by its merger with the Savings Bank of South Australia, the expanded entity retaining the "State Bank of South Australia" name.

In March 1988 the Bank purchased the life insurance and managed funds business Oceanic Capital Corporation for A$60.0M.

Questions over the financial viability of the Bank were first raised prior to the 1989 state election by Opposition Liberal Party member Jennifer Cashmore.

1990

In June 1990, the United Building Society was purchased for $NZ150.0M.

1991 State Bank collapse

The bank's financial implosion in 1991 was one of the biggest economic disasters to hit in the state. The State Bank's deposits were "guaranteed" (legally underwritten) by the Government of South Australia; the net effect was to put every ordinary citizen and business living or operating within South Australia into billions of dollars of debt.

Despite SA State Bank managing director Tim Marcus Clark being ultimately considered the most legally responsible for the Bank's downfall, he nevertheless received no court penalty or reprimand.

Politically, it caused the resignation of State Australian Labor Party (ALP) premier John Bannon in 1992, and the crushing electoral defeat of the South Australian ALP government at the following 1993 election.

The State Bank collapse continued to affect South Australian citizens, along with the state's finances and politics well into the 21st century. The State Bank debt was given as the main reason for the privatisation of Electricity Trust of South Australia (ETSA) by the Liberal government of John Olsen, despite his election promise in 1997 that privatisation of ETSA would not occur.

The saleable portion of the State Bank was acquired by Advance Bank, which itself was bought by St George Bank. The Bank of South Australia (also known as BankSA) is now a division of, and a trading name of, St George Bank. St George Bank merged with Westpac Bank effective 1 December 2008.

Causes of the collapse

In March 1991 the Auditor General of South Australia was appointed to conduct an inquiry to determine the causes of the State Bank's need for Government support. The report, delivered in 1993, found the key cause of financial distress was the non-performing assets of the Bank, i.e. its loan portfolio. These non-performing assets were corporate and property-related loans made by the Bank. At the time of the bailout, non-performing assets exceeded 30% of the loan book. The report found that 'to a lesser extent', its investments in major subsidiaries acquired between 1985 and 1990 also performed poorly and were also a contributory cause.

The Auditor General did, however, make it clear that while these external factors were causes of the bank's poor financial position, 'a contributing cause of the institution's financial failure' was the failure by the bank to adequately manage the debt, capital, interest rate risk and liquidity risk of the bank. The report indicated that this was because 'policy and procedural inadequacies, and the lack of effective supervision and control of certain of the Bank's activities, contribute to the mismanagement of the business of the Bank as a whole'.

In March 1991 Samuel Jacobs QC was appointed to head a royal commission to investigate the relationship between the Bank and the South Australian Government, and the arrangements under the Bank of South Australia Act for the governance of the Bank. The first witness to be called was John Barnes, the state's former Under-Treasurer (1976-1984). Three reports of the Commission's findings were published in 1992 and 1993. The first and second reports were presented by the Honourable Samuel J. Jacobs and the final report was presented by John Mansfield.

Bannon remained as Premier during three inquiries, the last two of which cleared him of any deliberate wrongdoing.

Chris Kenny, a former journalist, who has worked as advisor to Liberal politicians John Olsen, Rob Kerin and Alexander Downer, and as chief of staff to Malcolm Turnbull, wrote State of Denial, a book which analysed the State Bank collapse.

Advance Bank, St George Bank and Westpac Bank

In 1992, Advance Bank bought "the good bank", and continued to run it as a separate entity named the Bank of South Australia, and trading as BankSA.

In 1997, St.George Bank took over the Advance Bank and its BankSA subsidiary.

In 2008, St George merged with Westpac.

See also

There are a number of building societies and banks with intertwining histories. These include:

• St.George Bank
  • St.George Co-operative Building Society Ltd. / St.George Building Society
  • Cronulla & District Co-operative Building Society
  • St.George and Cronulla Building Society
• Advance Bank
  • NSW Permanent Building & Investment Society / NSW Permanent Building Society
• BankSA / Bank of South Australia
  • Savings Bank of South Australia
  • State Bank of South Australia
• Westpac Banking Corporation
  • Too many to mention - those of major relevance to St.George / Advance Bank / BankSA:
  • RESI Statewide Building Society
  • Bank of Melbourne (1989)
  • Bank of Melbourne (2011)

External links

• Report of the Auditor-General on an Investigation into The State Bank of South Australia - Full text of Auditor General's report, 1993
• The best I could do was not good enough: The Advertiser 27 February 2009