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Investors make politicians look silly

Monday, July 13th 2009, 9:36PM 10 Comments

by Philip Macalister

I was having a good weekend until Sunday night when I read two politicians publicly getting into the ING CDO debate and arguing the offer made to investors was unfair. To get straight to the point, this posturing from Peter Dunne and Lianne Dalziel is absolute cheap, political garbage. I have publicly stated before, and I will say it again: Good on ING and ANZ for fronting up and putting up to $400 million of their own money into this problem. Show me another similar company who has been prepared to do something like this? You can’t because there isn’t one. The closest is Hanover. If the politicians had any interest in investor protection they would have made and enforced rules to stop some of the shonky finance companies even getting off the ground. If they did their job some of the directors of these shonky companies would be in jail now – for a long time. Jeez the US has already locked Madoff up for the rest of his life. His ponzi scheme came to light well after some of ours fell over. Dalziel and Dunne have been lawmakers for a long time. One is, and has been, Revenue Minister for some time and the other Commerce Minister. They could have made a difference. They didn’t. Today’s announcement makes them look silly. Around 95% of investors have accepted the ING offer. They knew what they were getting into as there has been ample publicity around the offer and the indemnity. If it was such a bad deal they had the chance to say no. They haven’t. They had the choice. As an aside there seems to be some great irony here. If the Frozen Funds group thought it was so bad then they shouldn’t have accepted it. Seems to me the bulk of them have (the only other conclusion is the group’s membership isn’t that big). Let’s get this argument straight. While the indemnity bit of the offer leaves a lump in the throat, it’s not an unusual offer. If I was the one stumping up with the money I would do the same thing – wouldn’t you? If you look at all the other carnage out there in the past few years this is the best and the most generous offer put on the table. These blokes running finance companies still have their flash houses and cars and haven’t offered diddly squat to their debenture holders. Let’s have a reality check, get politicians to do important things, and move on (and never-ever make a CDO fund again).
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Comments from our readers

On 14 July 2009 at 11:58 am Joey said:
Generous - interesting description for people to be offerred back 60% of their own money back, on the proviso they waive their legal rights when they were potentially misled about the investment in the first place. Fair enough if you've had full disclosure regards the investment risk and you dive in anyway, then you should wear the hit and be glad of seeing anything - but is that the case for these investors? And just because the take up has been so high doesn't necessarily make it a tribe of chirpy investors happy to see the settlement - more likely it's a bunch of people who can't afford to, and don't want to have wait to see their money back in their own hands.

This may be the best offer in an environment of rubbish but it only means its a better grade of rubbish - but it's still rubbish. I struggle to sympathise with the corporates when the investors were potentially misled and are told - here's some of your cash back, but don't bother coming back for more even if we were in the wrong.
On 14 July 2009 at 1:16 pm Independent Observer said:
Despite the typical verbal diarrhoea that is usually associated with a Politician - on this occasion I fully support their public stance. The facts appear to indicate that a corporate wrong-doing was conducted (whether deliberately or by accident is yet to be determined), and subsequently attempted to be covered up with a “part or nothing” repayment offer. In the absence of any Regulators upholding the rights of ordinary investors, the Politicians are right to stand up for their constituents. That’s what they’re there for! My only hope is that the Regulators will listen to the voice of affected investors and over-rule the inequitable conditions of the partial repayment.
On 15 July 2009 at 1:11 am Robert said:
Come on Phil

How about in the interests of full disclosure you disclose the advertising revenue you gain from the companies you are so impressed with.
On 15 July 2009 at 9:44 am Pragmatist said:
The big issue as I see it is the waiver.

A simple solution would be for ING to drop the waiver specifically in relation to the Commerce Commission invesigation.

ING have repeatedly claimed that they believe that the Commerce Commissoin will find them innocent of any wrongdoing. If so, then they have nothing to fear.

This would satisfy their critics (including 3 political parties now).

Lianne Dalziel is calling for ING to be a "responsble corporate citizen" and has said "You cant' hold someone to a contract that allows them to break the law".

John Boscawen has said that he would also "put together a private member's bill to double the chances of the waiver being stopped".

Once again, if ING's conscience is clear, then they have nothing to fear by agreeing to abide by the ruling of the Commerce Commission in a few month's time.

This matter will just fester away and intensify otherwise.

But then again, I suspect ING will achieve a higher selling price for their NZ business WITH the waiver than with a contingent liability attached!
On 16 July 2009 at 8:51 am Independent Observer said:
...I'm intrigued by the comments of Pragmatist - especially the final paragraph. It would be wise to remember that "everything is for sale", "NZ is but a drop in the global ocean", and "every transaction requires a willing and able buyer and seller". Given these ingredients - who would want to purchase a brand that is damaged beyond repair?
On 16 July 2009 at 9:33 am Pragmatist said:
I guess everything gets down to price - even in their present beleaguered state.

I presume ANZ would be the natural buyer of ING's 51% share provided they could agree on price. If they couldn't agree on price, I presume ING NZ would be offered elswhere or sold off sepraterly (i.e. insurance, Kiwisaver and funds management divisions).

We know that ING Amsterdam are looking to sell peripheral assets and that their Australian business has been specifically mentioned.

Interestingly when Helen's boss Paul Bedbrook was interviewed by the Christchurch Press recently and the subjecy of the ING NZ being sold off came up he said:

"The reality is Amsterdam doesn't tell us" and "We don't know is the correct answer for Australia and New Zealand".

Draw you own conclusions from this. I have.
On 18 July 2009 at 9:41 pm Observer said:
Phil, I agree with some of your comments.

The timing of these Politicians's involvement is crap. I'm pretty sure unit holders approached their local politicians for as early as last year when the funds were first suspended or when the first offer was made to unit holders. Where was the support then for these investors last year?

What did these Politicians's expect to achieve one week or so prior to ING's deadline?

Perhaps their agenda was a personal one in trying to enhance their image as a caring politician. They're a joke!

What a contrasting view from John Key, our Prime Minister.
On 19 July 2009 at 5:40 pm Red Dog The Pirate Guy said:
Wasn't Lianne Dalziel the lady who addressed the IFA AGM and gave the members a pat on the back ?

Politicians run with the hare and hunt with the hounds.
They say and do whatever is best designed to keep them in power.
Like Lawyers,they will never admit if they have done anything wrong.

The Phillip Taito Field case reminded me that you are not allowed to write on your hand when you sit an exam.
They call it cheating.
It won't help his credibility with the justice system.

As we have since 1984 been moving towards being a clone of the USA,how long will it be before we have cumulative rather than concurrent prison sentences.
There are quite a few crims who would qualify for 150 years behind bars.

As for ANZ,if you look at the IRD cases against the Banks presently in vogue,$400 million is just a bit of money they play with...ANZ took the punt in getting their investment advisors to talk little old ladies on walking frames into putting their life savings into products which ANZ insisted were suitable for them as investors,and they didn't put that ex term deposit money into something very safe...so if they want to maintain any credibility in NZ going forward,they have to come up with a bit of coin.
Added to this is the cunning plan to offer iNG investors a 5 year term investment at an attractive interest rate....which is designed to result in five years time,the ANZ investors thinking what jolly good blokes their bank is,and then deciding not to move to one of the other banks.
Meanwhile,back at the coalface,National Bank staff are not feeling as secure with their employment status since ANZ took over ownership...

As for some of these Finance Companies...As an agrieved investor said to me "These guys just set up companies to see how much money they could steal from the public.."....When the game is up,you hardly expect them to say "OK I am going to declare myself bankrupt,and I am going to take all the assets from my twelve trusts and sell them up and give the money back to the poor investors,and I will now become a monk "
No as we saw,Roddy wanted to keep his Porsche....

As for investors accepting the ING offer...what is it going to cost to litigate against a multinational...the man in the street just can't afford it,and the multinationals just chsrge the legal fees up as a corporate expense.

My advice to ING investors was that if they could limit their loss to $200,000,then walk away....as you are going to be paying your $300 an hour provincial lawyer to battle against someone being paid $650 an hour by a multinational...and an hourly rate with three zeros behind it if the heavies get brought in.

There is an old saying "You Can't Fight City Hall."
On 19 July 2009 at 5:45 pm Red Dog The Pirate Guy said:
I have also advised all ANZ clients in ING to go tothe Banking ombudsman.

Regrettably this is not an option for investors involved with ING Franchise advisors.
On 19 July 2009 at 9:43 pm Harry Potter said:
I think Phil deserves support on the posturing politicians.

Whether in relation to ING, finance company directors, research house analysts or advisers failing in their duty of care to the investing public, investor protection does not seem to be working. After two or three years of financial mayhem, our regulators seem unable to find anyone culpable for investor losses. Yet with so many financially walking wounded, why not?

This week I note in RBNZ releases tougher rules for non-bank sector (released on Good Returns on 13 Jul 2009) Paul McBeth says that the Reserve Bank has just announced:

“Boards of non-bank lenders will have to take responsibility for the solvency, capital adequacy and liquidity of their companies, along with approving prudential requirements and monitoring any legal compliances, according to the updated risk management programme guidelines”.

Strewth – didn’t they have to take that responsibility before as company directors?

If not, what on earth were our politicians and regulators doing last decade then? It seems to me that either:
- the regulators are not using existing law effectively to bring people to book; or
- the law and regulations are useless.

Under such circumstance the posturing by current and ex-ministers who have been responsible for the present regulatory regime over the last decade does grate more than a little. By all means assist with future regulation – just spare Phil and I at least the hypocritical press releases talling us you have finally woken up.

So I empathise with Phil in reaching for the sick bag, and suggest to those politicians mentioned that they work on financial services regulation without any further fanfare - if they want to keep any respect, that is.

This brings us to the second part of the blog, on the ING offer.

Court action is a course open to those who feel ING has a case to answer. Class actions and other individual options could be pursued. I expect many investors have been advised on their options, and decided the chances of getting realistic or exemplary damages awarded through the courts are about as high as the chance of getting a decent return from investing in a CDO fund right before a credit crunch.

So 95% have decided the bird in the hand is worth keeping. Hurt and upset they may be, but time to move on seems to be the collective decision. I suspect it is the right call.

And just who should be blamed for the fact that the chance of redress in the courts is so low? I think we can sheet that home to the politicians running the show for the last decade can’t we? Pass that sick bag again please, Phil.
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