Boscawen to Support Dalziel’s Illegal Contracts Amendment Bill

Friday, March 19, 2010

Speech to ING/ANZ Frozen Funds Group, Napier, Friday, 19 March 2010.

Good afternoon ladies and gentlemen.

Thank you for your invitation to speak at this function this afternoon.

Firstly, may I congratulate you on the professionalism of your organisation and the dedication of the very many members who have been instrumental in getting this issue into the public and political arena.

In particular I would like to acknowledge National Organiser Gerrard Prinsen, Local Co-ordinator Kerry Jex-Blake and other members of the Hawkes Bay Frozen Funds Group.

As a new parliamentarian following the last election my interest in this issue was heightened with every new issue of the ANZ/ING Frozen Funds newsletter. One cannot help thinking that the settlement that you received from ING – while far short of your expectations – may never have happened had it not been for your dedicated commitment to this task and military style nation-wide organisation with 13 branches throughout NZ.

It was your Frozen Funds newsletter that first alerted me to this issue and I was the first Member of Parliament to speak substantively on it on June 30 last year with follow up questions the next day to the Minister of Finance. I vividly recall my telephone call that day to Tauranga member Bruce Graham. He told me that he stressed to his ANZ advisor that security of his money was paramount and that he was repeatedly assured that his investment with ING was “as good as a bank Bruce”. From that time on I have stood up and fought for your rights.

In particular, I fought to have the former Banking Ombudsmen Liz Brown appear before the Commerce Select Committee on July 25 in an effort to create even further publicity for your cause and to ensure that as many people as possible were are aware of their right to seek additional compensation through the banking Ombudsman’s office.

Subsequent to me first raising this issue in Parliament, the former Minister of Commerce Hon Lianne Dalziel announced her intention to introduce a Private Members Bill – Illegal Contracts (Unlawful Limitation on Regulators’ Powers) Amendment Bill and that is the Bill that is being launched today.

I am committed to ensure that the issues this Bill raises are discussed extensively and publically in Select Committee and I am pleased to say that if this Bill is drawn by Ballot and makes it before the House, that it is my intention to vote for its first reading so that all the issues may be discussed.

Furthermore, I will be working hard to convince my other four ACT colleagues to also support the Bill to first reading and assuming the support of both the Green and Maori Parties it will only require two of my four colleagues to support it, for it to be referred to the Select Committee.

The collapse of the financial sector has been devastating for literally thousands of New Zealanders. Many of those that have suffered losses have been elderly and many have lost a significant part – if not all – of their life savings.

For many it will be too late in their lives to rebuild those savings and to once again enjoy the same standard of living and security they had before these collapses.

In my maiden speech I told Parliament that I had lost everything in the late 1980s and was insolvent, yet at the age of 30 I was young enough to recover and I did. Sadly, for many of you that will not be possible.

In some instances the losses incurred by finance companies have resulted from a dramatic change in world markets and a fall in property values that honest directors couldn’t reasonably foresee. However in far too many cases, losses have resulted from mismanagement, related-party transactions, lack of adequate disclosure, hidden and excessive commissions to financial advisors and in some cases straight out fraud. Inadequate regulation and failure to enforce that regulation has also been a contributing factor.

Against a backdrop of such massive losses, ANZ and ING have argued that they have been very generous to investors – by offering 60c in the dollar for the Diversified Yield Fund (DYF) and 62c in the dollar for the Regular Income Fund (RIF). They also argue that this is further enhanced by offering an above market eight percent interest rate on funds for up to five years.

While investors receiving some 60c in the dollar will no doubt be far better off than investors in most failed finance companies, I don’t believe ANZ should be comparing itself with that sector. By their very nature, banks occupy a very special position of trust and have privileges afforded to them in Government legislation.

In the instance of the RIF and DYF funds, ING has offered – through both ANZ advisors and other fund managers – funds which were reputed to be either ‘low risk’ or ‘low-to-medium risk’. It’s now obvious through the investigations of the Frozen Funds group and by ANZ/ING own admission, that the bulk of the money in these funds was invested in either B rated or BB rated funds and that this was sub-investment grade. In the case of a B rated collateral debt obligation, bond holders effectively ranked in forth or fifth place with only nominal equity of eight percent behind them.

I don’t believe that had investors been informed of the real risk of these funds, ING would have raised anything like the $850 million it was able to in both of these funds. For example, when ING offered its Credit Opportunities Fund in 2006 and identified it as being a higher risk than its RIF and DYF, I understand it raised only $30-$40 million dollars.

Equally, another very important reason for me deciding to support the legislation is that other companies operating similar funds decided to close these funds for redemption and new investments some eight months before ING closed RIF and DYF.

Basis Capital Ltd in Australia was one such company and I believe that ING should have closed DYF at least six months earlier then it did. Directors are responsible and should be charged with – and personally liable for – the failure.

Finally, in announcing my support for Lianne Dalziel’s Bill today I am acutely conscious that the Bill will first need to be drawn by ballot before it can be discussed by the House. Hopefully this will happen soon but there is no guarantee. For that reason, should the Commerce Commission find fault with the actions of ING, I urge you to continue to protest and use the full weight of the media and public opinion to ensure that ING and ANZ do the right thing by their customers.