Phil: Who is going to get ANZ's $45 million?

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Wednesday, June 23rd 2010, 9:05AM 1 Comment

by Philip Macalister

The ANZ settlement over how ING’s CDO-backed funds were sold brings some closure to the matter – but leaves questions and some lessons. Firstly investors never really like these sort of settlements. They interpret them as the company doing wrong and all but pleading guilty while they (the investors) don’t get the full benefit (including a scalp). To describe yesterday’s decision a “moral victory” rather than a financial one is pretty close to the mark, and all that could really be expected. The reality is that to take the case through the courts would be a long and costly process. No doubt there would be appeals and the matter would drag on and on. The commission claimed that many of the investors were elderly and couldn’t afford the time, so a settlement was a practical solution. The idea that there should be some sort of product recall and investors should get all their money back is still, I believe, an unrealistic option. As Commerce Minister Simon Power said yesterday (in announcing changes to securities laws) “The Government cannot and will not legislate for risk, but we can build a regime that makes those risks more transparent.” Investors knew there was some risk in these funds and they have to accept that. The bit that still remains unclear is whether this settlement is just for investors who put money into the funds via ANZ advisers, or whether it includes independent advisers (IFAs) as well? It seems to me that it relates to ANZ advisers (who accounted for just under 3000 of the 15,000 investors). In the past we have noted that there were concerns about how ANZ advisers sold these funds and that seems to have been acknowledged in the settlement. However there is little to discuss how IFAs sold the funds. I have, in the past, compared the ING funds to finance company collapses. This settlement shows two stark differences between the two types of investment. The first is with a comment the commission made. It said the settlement has been made as “unlike many other situations where investors have lost their savings, in this case ANZ has the financial ability to make substantial further payment to investors.” Investors in collapsed finance companies should take note. Maybe the lesson is only invest with companies which have the financial strength to put things right? The second is around intermediaries. All the ING product was sold through advisers (either ANZ or independent), however the majority of money which went into finance companies was put into their debentures directly by clients. By using intermediaries investors do get some comeback (particularly bank-aligned ones at the moment) and will get more protection once new regulations come into force. And of course the fundamental problem was no one really knew or understood how these funds worked and what would happen when markets changed. The lesson – or repeat of the sermon – don’t invest in things you don’t fully understand.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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