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Solving the ING Rubik’s cube

Friday, June 19th 2009, 1:27PM 10 Comments

by Philip Macalister

As a young lad solving the puzzle of the Rubik’s Cube was one of those frustrating things that took me quite a bit of time and effort. ING’s attempts to solve the puzzle of its CDO-backed funds, DYF and RIF appear to have the same characteristics. Long and slow. The company’s roadshow around the nation this week, in tandem with its joint venture partner ANZ Bank, has generated plenty of media attention. Seemingly every day there is a new story doing the rounds and each one tries to find a more sensational angle than the last. We’ve had the stories about how much ING NZ boss Helen Troup gets paid, whether the company is for sale and a raft of other stories which appear to be more fiction than fact. My guess, from what I have seen and heard, is that the Frozen Funds group of dissatisfied investors is behind a lot of this. They remind me of the sort of protest group that turns up at a rally, just for the heck of it. Rent-a-crowd type thing. I have heard others describe them more like Al-Qaeda in their approach. Having debate about the offer and what is happening is fine, but it would be nice if the protestors kept to the issue than go off on all sorts of tangents and spread rumours. You might think I am being a little harsh, possibly I am. These people have suffered a big hit, and many are feeling, rightly or wrongly, they have been duped somewhere along the line. One of the most sensible comments I have heard all week came from an ING executive who said everyone has to take a look at themselves and accept some blame. ING, ANZ, the regulators, advisers and investors. I totally agree. What’s more, as the week has gone on ING and ANZ have fronted up (besides with cash) and acknowledged mistakes were made. It’s about time advisers and investors did the same thing. I, like many others, have been asked what I think of the offer. My view, (and I am not an investor in these funds because I couldn’t understand them) is that it’s a good one. There are three choices and the cash offer looks pretty attractive. A term deposit at 8.30% is highly attractive and way better than carded rates at the moment. Also the ANZ TD is currently government guaranteed – a fact passed over at present. The bit about waiving legal rights is a tricky one. From ING and ANZ’s perspective it makes sense and is a reasonable quid pro quo for the amount of money they are putting in. As for the bit about having no guilt attached, that appears to be the reality of these types of commercial deals, love it or loathe it. If I was an investor I would probably like it because it brings the matter to an end and gives me some certainty. Holding on for a better offer looks even less likely than winning Big Wednesday this week – it didn’t happen. Likewise, holding on for rulings from the Securities and Commerce commissions and hoping they make ING and ANZ produce a better offer is something I wouldn’t put a wager on. However, I would suggest Troup is pretty good at solving the Rubik’s Cube and will have all the squares lined up soon. Some though may be a little battered.
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Comments from our readers

On 19 June 2009 at 4:46 pm Denis said:
Phil,


"I have heard others describe them more like Al-Qaeda in their approach."

Oh, my aching sides. What a crass and stupid thing to write.
On 19 June 2009 at 4:52 pm Red Dog The Pirate Guy said:
Today's NZ Herald article has an interesting comment from ANZ's John Body.

"..Body said investors should not have had all of their money put into the funds,those who had a low risk tolerance should only have had up to 25% of their money invested..."

With this comment,ANZ are shooting themselves in the foot.

If you write to ANZ to lodge a complaint,you are wasting your time,regardless of the fact that your ANZ advisor has placed all of your ANZ term deposit funds in ING DY or GI.

The only solution is to accept the offer,and also lodge a complaint with the Banking Ombudsperson.

If you accept ANZ's offer,you cannot litigate against them,but they cannot make you contract out of a complaint to the Ombudsperson.

If the Ombudsperson does not accept that ANZ's advice to transfer all your savings from ANZ Term Deposit into one of these frozen funds was flawed,I would be extremely surprised.

While ANZ seemed to think it was acceptable to put 100% of term deposit funds into one ING Fund,financial advisors selling ING products had more sense and in my experience did not put more than one third of a portfolio into one of these products.
On 19 June 2009 at 6:51 pm Robert said:
Phil, what an incredible post. Well I suppose that's going to be the thinking of someone who personally benefits from INGs advertising dollars. You would need to sacrifice any personal integrity if you were going to take ING's side

After all if the investors had sucked it up then they wouldn't have put ING and ANZ in the terrible position where they have to make an offer

Oh sorry was that's a bit harsh?
On 20 June 2009 at 2:42 am Peanut H said:
Don't put your duster away just yet. ING have been using their furniture polish to remove the dust of the structured credit debacle and will comfortably think everything is settled with the exchange of funds on 28/8/09. As we all know dust has a knack of settling back no matter how much polish you used to get rid of it. ING has a long way to go before matters are finally settled.

The Securities Commission Lawyers have obviously had a look at the problem in terms of the Securities Act and probably determined the conduct in question is clearly regulated by the Securities Act. The next filter the Securities Commission Lawyers would have applied is the question of could ING be liable for an untrue statement made in an advertisement or registered prospectus under the Securities Act? Judging by what has occurred the Securities Commission Lawyers have also answered yes to this question and have no doubt decided pursuant to s.63A of the Securities Act that ING could also be liable under s.9 of the Fair Trading Act. Therefore the Commerce Commission Lawyers will be gathering evidence at this time to establish whether there is a case to answer or not.

One sentence you wrote Phil will echo long after all the dust has settled "I am not an investor in these funds because I couldn’t understand them". If you, as an expert observer and commentator on the financial products landscape, couldn't understand them, what hope did the Advisers or investors have of understanding them.
On 20 June 2009 at 2:17 pm Norman Stacey said:
Phil:
I have some sympathy for John Body's statement - though his number may be a little elevated. An investment which is not acceptable as a single holding, may be acceptable in a portfolio context. Good portfolio practice may have been lacking. Following is a good, succinct, 14-yr-old, but still pertinent summary:
#1) Excerpt from Bond Law Review, Vol. 7 [1995], Iss. 1, Art. 8
‘Modern Portfolio Theory and Investment Powers of Trustees: the New Zealand experience’, by Andrew S Butler, Lecturer, Victoria University of Wellington.
“At the heart of portfolio theory are a number of key principles:
First, the measure of a person's wealth is the value of her portfolio looked at as a whole.
Second, the security of the investor's fund can be enhanced by diversifying it across a range of counter-reacting ('negatively correlated') investment vehicles.
Third, decisions as to which investment vehicles ought to be included in a portfolio cannot be made in isolation; they must be made in light of the nature of the other elements of the portfolio. Thus, investment vehicles which might be thought speculative when considered in isolation, may not be speculative when considered in the context of a portfolio's overall holdings.
Fourth, the return on a portfolio reflects both income and capital returns and to separate the two is an artificial exercise”.
On 21 June 2009 at 12:05 pm Red Dog The Pirate Guy said:
In view of what has eventuated,a figure of 5% would have been a more logical cap for a portfolio.
There is a massive difference between the 25% which Body is mentioning,and the 72% to 100% which I have seen ANZ customers subjected to.
Obviously Body was not the person who was responsible for training the ANZ sales team on the topic of portfolio composition.
Would the ANZ staff responsible for training these salespeople please step forward ?
On Friday I talked to yet another ANZ customer who said that he had unsolicited approaches from an ANZ investment advisor to move his ANA term deposits to ING.
However he is by nature conservative,and is a successful self employed person with enough business acumen to be wary.
He intends to now shift most of his investment funds to a different bank.
I would contrast the ING investors who are ANZ customers,from those who invested in ING through advisors.
The ANZ customers were specifically targeted by ANZ as any easy touch,and did not proactively seek investment advice.
By contrast,those working through advisors proactively sought investment advice.
It is good that there is a group of investors stamping their feet.
All power to them.
New Zealanders need to get more militant,instead of being afraid of making waves.
We have moved on from being a grey society where "There was Rugby or there was nothing."
I would like to eyeball the ING executive who said that everyone has to accept some blame.
He needs to talk to someone who works at the coalface with members of the public who have been "Sold A Pup."
New Zealanders historically have been very trusting.
That makes them an easy target for shonky practices.
Rogernomics has turned this country into a selfish greedy society.
And one which progessively is a lot less trusting.
Which reminds me..I must make contact with a couple of aNZ clients to assist them with complaints to the ombusperson.
On 22 June 2009 at 2:36 pm Credit Where Credit's Due said:
I think Helen and her team did a great job last week and it's time to move on now and forget about this whole sorry saga.

To Helen's great credit, she has already said that she feels the pain of those many thousands of investors who have lost a large percentage of their life savings and is therefore showing great compassion for them. I haven't heard Mr Petricevic say anything like that, yet. Perhaps he will in the fullness of time from the comfort of his 'container' prison cell?

Also, while we are handing out plaudits, let us say a big thank you to Brian Edwards. I'm sure he didn't come cheap but he was worth every cent. He did a great job of controlling the rabble and shutting investors up during question time if their questions became too difficult to answer. Job well done, Brian.

Helen and her team deserve a nice long holiday now so they can recuperate from all the stress this unfortunate saga has caused them.

Morningstar should also award ING the Fund Manager of the Year again after this slick performance. Gareth Morgan told us on TV last week that you have to pay Morningstar to get the award but once again, it would be worth every cent if it helps restore ING to your former glory.

ING used to be the NZ's pre-eminant fund manager and we all hope you will get back on that pedestal again soon. You certainly deserve to. In another month this whole thing will be all over. The public and media only have short memories so everyone will soon forget about this unfortunate little experience.

So well done again, Helen - you are a legend. In your short time in this country you have achieved greatness. You are now up there with Naomi. You girls have certainly shown your male predecesors how to do it right. Congratulations from an admirer.
On 23 June 2009 at 8:42 am Norman Stacey said:
Yes, a 5% allocation to CDO's would have been acceptable, even if it turned to custard. With ING's settlement, that equates to a 2% portfolio loss - plus loss of use of funds.
The product should still have been properly priced. Investors should be able to expect a NZ regulated retail investment product to be competently run.
On 1 July 2009 at 6:35 pm Phil Skingsley said:
I have to say that I completely agree with "Red Dog The Pirate" as to their response.

From everything that I have heard,the ANZ Advisers themselves did not fully understand the risks of this complicated product, however they were selling it to the clients as a low-risk investment.

The Banking Ombudsman route would be a sensible way to go, because in my dealings with her in the past, she has ruled in favour of the investor using a general rule of thumb which goes something like this, "The bank/adviser is the expert in this product, whereas the customer is not. The customer's history is of conservative investing, so the onus rests with the bank/adviser to ensure that any investment offered to this customer is conservative, and this was not".

I believe that the ANZ has already settled a couple of similar cases, which would only add to the pressure for them to settle on more cases if the Ombudsman so ruled.

I think the investors have every right to feel aggrieved.
On 3 August 2009 at 3:49 am NZ investment fund industry in a crisis « Two banks and two failed funds said:
[...] http://www.goodreturns.co.nz/blog/solving-the-ing-rubik%E2%80%99s-cube#comments [...]
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