Bankwest was "essentially insolvent" and had made high-risk investments through the global financial risk era before it was sold to the Commonwealth Bank, a Senate inquiry has been told.
The inquiry, into the post-GFC banking outlook, was also told claims the Commonwealth deliberately sought to liquidate Bankwest customers to cut the purchase price were "absolutely wrong".
The Commonwealth bought WA-based Bankwest in October 2008 from beleaguered Scottish bank HBOS for $2.1 billion.
Complaints were later made that the Commonwealth unfairly terminated Bankwest loans and liquidated customers' assets though their businesses could have been saved.
Commonwealth Bank officials were under fire at yesterday's hearing, with WA Liberal senator Alan Eggleston saying it appeared the CBA engaged in a "brutal, systemic" approach to its customers.
WA Labor senator Mark Bishop said it was clear the Commonwealth was aware of some of the problems inherent with Bankwest before it bought it.
"It's not unremarkable that CBA initiated a root and branch review of the loan portfolio," he said. "I would find it remarkable if you did not after buying a business that was essentially insolvent to the extent you paid half the going price."
But CBA senior officer David Cohen said a review of Bankwest loans after it was bought showed it was at particular risk going into the global financial crisis.
"What we do know from history is that typically, in economic downturns, sectors such as commercial property, hospitality and tourism often suffer most," he said.
"Bankwest's commercial loan portfolio was heavily weighted towards those sectors."
The Commonwealth came under fire for its handling of complaints from the public. But Mr Cohen said suggestions it wrote off loans for little reason were not true.
He said there was no commercial advantage to put borrowers in default because both parties lost.
There have been claims that the Commonwealth had a "clawback" deal with HBOS which reduced the purchase price by putting Bankwest commercial loans into default.
Mr Cohen said any loans that became distressed after the purchase became a liability for Bankwest and CBA had no right to recoup related losses from HBOS.
Bankwest will present evidence to the committee today.