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TakING two: How's Plan B stack up?

Friday, March 6th 2009, 12:27PM 6 Comments

by Philip Macalister

OK it’s time to give a view on the latest proposal from ING for investors in its distressed CDO funds DYF and RIF. A funny thing happened on the morning of the announcement. No one knew anything was going to be announced last Wednesday, including I hear people within ING itself. I was having a yarn that morning with one of its competitors about the problems ING faced (as you do) and how it was going to get out of this rather large hole. The view discussed was that it was unlikely ING’s shareholders, that is ING and ANZ, would be writing a big cheque. Thus the conclusion was that it was difficult to see an answer or a way out of the mess. Well that line of thinking was wrong. Several hours later the company came up with Plan B. That is a guaranteed minimum payment of 83c and 86c in five years time for DYF and RIF investors respectively, or a cash-out now price of 62c and 60c respectively. The first thing is that this offer is miles better than the previous one. The earlier one where there was to be a $100 million loan to give investors some cash was not particularly flash. So on that point ING have to be given credit for binning a dumb idea and coming up with something better. Also, and very importantly, advisers should take huge credit for pressuring the company into coming up with a better plan. As for the price. Well the view is that the actual return investors get is something less than the number the company talks about. I understand it could be considered that the investors who stay in for five year are getting in effect a 6.7% annual return over that time, based on the current unit price (if they could exit now). Trying to get a good handle on the offer is hard as we still await the full details. What is interesting is that ING still seem to have faith in these products. Its first offer was, I suspect, predicated on the funds recovering. Even the second one has that feel about it too. When asked if there was alternative if investors voted this proposal down Troup said no. There isn’t a Plan C. PS: The other thing which has been occupying my mind is how long will this ING/ANZ joint venture last in New Zealand? From memory the New Zealand side of the deal weren’t that happy about it in the first place. (Not like the Australian side). This CDO issue has clearly put huge stress on the relationship and I would bet that the JV’s days a numbered. Just don’t know if the number is days, weeks or months.
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Comments from our readers

On 7 March 2009 at 3:53 pm Murray Weatherston said:
Hi Phil
1.I think the reason that Plan B appeared so fast was that ANZ needed to finalise their 1/2 year accounts - the amount of their provision $AUD 130 million was large enough to be material in the accounts - so finality on the RIF/DYF issue was required.
2. I don't think ING or ANZ actually have a clue as to what the funds will return over the next 5 years - nor does anyone else for that matter; we know ING at its last road show said the modelling was difficult and they wouldn't have an answer for months.
3. As I have said elsewhere, what ING NZ appears to have done is to say "how much would we have to pay out in 5 years time so that the cash an investor had got would be equal over time to the $1 the initial investors paid. I have been told by others that this calculation is based on gross (pre tax distributions) - of course investors would have paid tax on these but that might be being picky. But even a novice adviser would recognise that a $ paid out in 2003 was worth a lot more than a dollar in 2013 - if they don't know that, why are they advising?
4. Bluntly I think the shareholders of ING NZ are paying money to try to restore their reputations in the minds of investors; they know that they will probably lose a lot of money (unless miraculously the funds investmetns recover over teh next 5 years) since they will end up owning most if not all of the fund - see ANZ's provisions; we probably won't get to see INGs provision as they are not a listed entity in NZ; but as a foreign owned company, they are required to file annual accounts at the Companies office.
5. Investors are not getting a 6.7% p.a. return from the current price as you say above. Rather if you choose the 60/62 cents now vs the 83/86 cents in 5 years, you will have used a 6.54% p.a. or 6.60% p.a. respectively post tax discount rate based on quarterly interest payments. [I think most investors will take the money now even though the pre tax equivalent to the discount rate is a lot higher than current 5 year rates].
6. There are some other possible adverse angles that I am looking at in the context of this offer and will keep you posted when I sort these out totally.
On 9 March 2009 at 12:01 pm Gerard Prinsen said:

First of all, I would like to thank all people contributing to Good Returns for thinking through the manoeuvring of ING and ANZ in the past few months. I am one of the editors of the Frozen Funds File Newsletter – distributed among several hundreds directly affected people – and we are using and directly quoting some of your insights in that Newsletter. Your work really helps to assist people with their savings frozen in ING’s funds to make decisions.

Newsletter #3 is about to be distributed. It not only contains an analysis of ING’s second offer from a consumer’s perspective, but also an analysis of the increasing reputational damage that that the Frozen Funds are causing ANZ and ING.

For analysis of the reputational damage, we have merged some of the global research done by The Economist’s Intelligence Unit in 2005 (as well as PWC in 2004) on reputational damage with case material and quotes from New Zealand. We conclude that, so far, ING/ANZ’s handling of the crisis is a text book example of “how not to do it”. Our next generation of risk managers will be indebted to ING and ANZ.

Aside from offering analyses, the Newsletter also offers a platform for consumers to share ideas and information. And as a bonus, it builds up a url-library of all media reports on the Frozen Funds.

Subscriptions to the Newsletters are free, email:

A short impression can be watched on YouTube videos, e.g.:

We would kindly suggest you to ask for a free subscription yourself. If you then deem the Newsletter of relevance for your clients or professional contacts, please forward it to them.

Kind regards,
Gerard Prinsen
On 9 March 2009 at 7:31 pm Jim Smith said:
The consensus view seems to be INGNZ have handled the whole situation poorly from a PR perspective and today I saw that Steven Giannoulis who was responsible for corporate communications and clients services, is no longer listed on the INGNZ website.

INGNZ have backed themselves into a situation where they also had to back their management team when clearly the Risk, Corporate Communications and product distribution areas of the business, at the very least, have been found wanting. Regardless of whether Giannoulis left on his own accord or was pushed the fact that there have been no other changes to the senior management team (other than Marc Lieberman who read the tea leaves and scuttled off to Europe) suggests ING continues to be in denial about its role in what has occurred (regardless of whether you think they knowingly mis-sold products or not).
On 9 March 2009 at 7:54 pm Philip said:
I understand Steven G took redundancy, but then contracted back to ING. His role was split in two and one part of it, marketing I believe, remains unfufilled.
I think you should note that Marc's role was filled by Helen Troup and that the company has appointed a head of funds management.
On 10 March 2009 at 7:55 pm Jim Smith said:

My post was not intended to stir up speculation regarding Mr. Giannoulis’s departure. Rather I was try to make the point that if you put to one side the allegations that certain products were mis-sold (that’s for the Commerce Commission and the Ombudsman to rule on now ), it has become apparent there are major underlying problems with the asset management business of INGNZ and its hard to see how those can be fixed without fresh blood coming in. The new Head of Asset Management is not new blood, in fact as CFO Mr. Butler was heavily involved in the asset management business and its hard to see how giving him a new title will result in any changes in how the company does things. Full marks for how skillfully INGNZ has positioned his appointment from a PR perspective though. Ms. Troup’s background is in insurance and when you speak privately to advisors the consensus seems to be whilst she is very pleasant she doesn’t add anything new to the asset management business from a technical perspective. This leaves us with the question: PR aside, what is INGNZ actually doing to try to fix the underlying problems in its asset management business?
On 27 March 2009 at 10:19 pm Bruce said:
There is much talk about ING but is there any word on AXA's frozen mortgage funds ??
Commenting is closed



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