Not content with battling reputational risk dealing with the faltering Tricom and the Opes Prime disaster, the ANZ has been quietly battling another nasty situation across the Tasman.
It’s over the freezing of two investment funds run by ING New Zealand, which is 49% owned by the ANZ. That’s the same set up in Australia where ING and ANZ have a joint venture running all investment and superannuation activities. It’s controlled here by ING as well.
The two funds were frozen around a month ago to prevent investors from withdrawing money. The funds were basically illiquid because of the plunge in US financial markets. They were worth $NZ520 million (they had around 8,000 investors). Yesterday it was revealed the value had slumped 11% to $NZ463 million.
The funds were ensnared by the credit crunch and subprime mortgage mess in the US: they were reported to have 10% of the money invested in subprime loans. Oh dear.
Now there’s a growing list of complaints and bad publicity for the ANZ.
The New Zealand Banking Ombudsman office has received a number of complaints about the way that ANZ National Bank promoted the funds to its customers.
Media reports say the bank earned more fees from customers having money in these funds than on term deposit. Customers are complaining to the ombudsman they were approached by ANZ National staff and persuaded to shift their money from term deposits into these funds. One had money in bonus bonds.
ANZ National charged “an implementation fee” of up to 2% of the value of the money to place it in the fund, saying yesterday that the implementation fee was explained to customers, standard in the industry and it went to the bank, not to the bank’s advisers.
ANZ National, and any other adviser who persuaded a client to invest in the funds, also receive a cut of the yearly fees charged by ING for managing the funds. ING said it charged fees of 1.4% of the value of the fund each year and a 0.5% cut of that was shared with the financial adviser which would be the ANZ National bank or any other financial adviser.
“I can’t recall as many complaints over a particular product within a short space of time,” deputy banking ombudsman Susan Taylor said yesterday.
Media reports also question the ING’s description of the fund’s investment profiles.
The biggest fund, the ING Diversified Yield Fund, is described as having moderate risk and investing in high-yielding securities and suitable for investors looking for growth. The ING Regular Income Fund (RIF) was described in the investment statement as low to medium risk and suitable for investors looking for income from an investment.
And yet they invested in risky US subprime mortgages. It’s clear the fund managers did that to get enhanced returns above bank bill rates of 1-2% promised for the funds. It’s the same way cash funds in the US got into trouble and the same way Perpetual Trustees enhanced fund has suffered millions of actual and unrealized losses in Australia.
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