Filed under: General News
I missed this one……….
It was reported in the FT on Friday night that ING Direct, a subsidiary of the Dutch financial group, is taking over the customers and insured deposits of NetBank, an online lender with $2.5bn (£1.2bn) in assets. Apparently the bank was shut down on Friday by the US government following losses on sub prime mortgages and other loans.
It is a significant situation and marks the largest US bank failure the savings and loans crisis of the early 90’s. It is a stark reminder that the sub prime mortgage market is not a story that is dead and buried yet.
ING will be taking on $1.5bn in deposits insured by the Federal Deposit Insurance Corporation and said it had paid about $15m to acquire the deposits. ING will also acquire $724m in assets from NetBank, which filed for bankruptcy protection.
Arkadi Kuhlmann, ING Direct chief executive, said in an interview that ING stepped in partly to insure continued consumer confidence in companies such as his and NetBank that conduct all their banking business online and do not operate branches.
“This is all about confidence in the market,” he said. “Since we are the largest direct bank we were very pleased to assist and help out and hopefully take on these customers who will continue to do business on the Internet.”
ING Direct’s announcement came just an hour after the Office of Thrift Supervision, which oversees US lenders, said it would close NetBank following loan losses.
In addition to the losses, OTS said Georgia-based NetBank failed to improve what the regulator said were weak underwriting standards, poor documentation, a lack of proper controls and failed business strategies.
NetBank’s losses came largely due to early default on loans that it had sold, OTS said.
“While the institution continued to operate in excess of minimum capital standards, the actions taken to address these problems were unsuccessful and it became clear that high operating expenses combined with continuing losses were jeopardizing the institution’s viability,” the OTS said. It added that the closure came after NetBank’s previous attempts to sell itself failed.
Many small mortgage lenders have been forced out of business in the wake of the mortgage crisis and Countrywide Financial, the largest US home lender, appeared close to failure over the summer. Countrywide was aided by a $2bn equity investment from Bank of America and a fresh $12bn in financing from its lenders.
The FDIC said NetBank had approximately $109m in1,500 deposit accounts that exceeded the federal deposit insurance limit. These customers will have access to their insured deposits but will become creditors for the their uninsured funds.
NetBank’s website was shut down on Friday but was to reopen Sunday evening.
Filed under: Hedge Funds
It’s interesting to contemplate the growth of the hedge fund industry over the last few years and the amount of money that has flowed into them. The Wall Street Journal put it best saying that they had sprung up ‘like weeds’.As we have commented before, however, a lot of so-called ‘hedge’ funds are not strictly doing what it says on the tin. For example, how many times have you heard the phrase ‘long only hedge fund’?
How can a fund have a hedging element if it is ‘long only’? It seems to me that the branding of funds over the last few years has changed and any mention of the fund being called a hedge fund has set the pulses racing of investors and lead to them opening their wallets to, what amounts to, an aggressive and expensive, mutual fund.
Wouldn’t you (or have you!) done the same? If you call your fund a mutual fund you are immediately lumped in with the words ‘boring’, ’stable’ and ‘not very good performer’ (whether it is or not). If you call your fund a ‘long only hedge fund’ you are projecting an image of ’sexy’, ‘exciting’ and ‘good performance’.
I know this may not be the case at all and we should probably put ‘risky’ in the definition for hedge funds but you can see why a lot of funds that are not traditionally hedged investments have taken up the brand. It is the phrase ‘hedge fund’ that is capturing the brand value of the sector and consequently everyone is using it.
It will be very interesting to see what happens next year as the credit crunch takes hold and the affects of this ‘wipe out’ some hedge fund as was recently suggested by Anthony Bolton of Fidelity. Will the brand of ‘hedge funds’ still be as sexy? It is a tough call but I can see a few funds quietly moving away from the term if things get too tough.
Think of the dot com era (version 1) where everyone was scrabbling to call themselves ’something’.com ahead of their floatation, hoping to get in more dollars and a bigger valuation because they had some spurious link to the Internet. How many companies in the following years after the bubble burst changed their names to anything other than ’something’.com?
The cult of the hedge fund brand has grown unabated for the last few years. I first heard the term from a business partner in 1997 who had a ‘quant’ fund. (It was the first time I had heard that too). He did his best to explain to me what the whole situation was about, but I could not get my head around it and was in the middle of building a commodity broking business so did not pay too much attention. In what was a huge mistake in my hunt for personal fortune, I just didn’t think it was lucrative or sexy enough. As my son would say, aping Homer Simpson, … Doh!
Of course the hedge fund industry won’t disappear, it may be just a little unfashionable for a company to use the ‘brand name’. As in the fashion industry, styles come and go. In the eighties ‘risk arbitrage funds’ were all the rage, made famous (or infamous, should I say) by Ivan Boesky, the arbitrage trader convicted for insider trading. Maybe we will see this particular fund brand name come back into fashion with a squeaky clean new updated image.
Some have said that the current hedge fund situation is a mirror of the tech bubble, but I use the example above as a branding issue not a comment on whether the hedge funds success is a bubble like we saw in the early part of this decade in the tech market.
The difference is one of simple economics, hedge funds make money and have real product, albeit dematerialised bits of paper giving ownership, if only fleetingly, in companies that make real, saleable products.
No, Och-Ziff is no boo.com that is for sure but it may be time for some to have a hedge in place on their fund branding strategy.
