Monday, October 26, 2009

More on ING/Sold GSPRA at $21.9/Dollar Finds A Bid/

1. A Dollar Rally?: Early in today's trading, the U.S. Dollar finally found some upside traction, and the stock market caught the bubonic plague in response. This is the kind of knee jerk response that can be expected whenever traders are dominating the buying at the margin. The upward swing was small, nothing more or less than background noise, but apparently enough movement to cause selling by those who makes investment decisions based on the most fleeting of phenomenon. The Dollar Index touched 75.3 at around 9:15 a.m. E.S.T, then mounted a quick rally to 75.94 within three hours, which move coincided with the sharp sell off in the equity market. A number of other trades, which have been keying off the weakness in the dollar, such as oil and gold, followed the equity markets lower. GLD for instance hit $104.7 shortly after DXY hit its intraday low and then proceeded to decline as DXY rose in value.

2. ING: I mentioned in a prior post that I intended to sell 100 of the 200 ING hybrid, IND, currently owned before year end. Added 50 AEF at $18.38 /ING News I already bought an Aegon hybrid, AEF, to replace those 100 shares of IND. With the news today, which I view as positive for the ING hybrids over the short and intermediate terms, defined to mean the next one to three years, I will continue holding all of my ING hybrids so I will not pare IND now. If Aegon escapes the clutches of the EC without too much damage, I will transition to owning more of its hybrids when I decide to reduce the ING hybrids further. I view today's announcement to constitute a settlement with the EC on outstanding issues and consequently takes the deferral of the hybrid coupon payments off the table once the rights issue is completed successfully. In addition the payments to the Dutch state would trigger four mandatory payment events subsequent to any such payment even if the EC remained in the mix somehow.

ING did amend its agreement with the Dutch state to permit this early purchase of the government's shares without paying the 50% premium to the original 10 EURO price. This may become relevant when and if I ever decide to buy back my common shares sold near 40 some time ago. Since the EC is basically requiring ING to shrink to a regional bank for the Benulux countries, and a little more by 2013, I doubt that I will ever buy the common other than as a short term trade or hold onto the hybrids for more than three more years. The EC has shown that it is capable of causing long term damage to its financial institutions, and this deal with ING may be just the harbinger of more mischief to come.

In the revised deal with the Dutch state, and just for the government's shares repurchased before the end of January 2010, the amendment requires ING to pay the 10 Euros plus accrued interest at a 8.5% rate plus a premium based on ING's share price with a minimum of 333 million Euros and a 691 maximum, using a 11.6 Euro share price as the base at the time of the payment to determine the percentage if any increase to the minimum. ING to separate banking and insurance operations - ING (same document filed with SEC: fwp) ING "intends to use this window of opportunity to repurchase EUR 5 billion of Core Tier 1 securities in December 2009, financed by an underwritten rights issue." The Core Tier 1 securities are those junior securities to the hybrids issued to the Dutch state late last year in the amount of 10 billion Euros.

For those interested in the deferral issue, I did find this statement contained in another document at ING's web site:
"ING will not to be forced by the EC to defer coupon payments on
hybrids pending a successful rights issue"

(Page 22 of 39 of Analyst Presentation dated 10/26/2009 "ING Groep Accelerating the Journey Back to Basics") This document can be accessed by following this link and then clicking the appropriate entry: ING Or, I found the same document at the SEC web site: fwp I suppose that means that a non-successful rights issue would lead to a forced deferral but I do not see why that would happen.

3. Sold 100 GSPRA at $21.9 (see Disclaimer): When I did my analysis of the Goldman Sachs floaters, this security came in last place based on the then existing price. Analysis of Prior Question about Goldman Sach's Floaters
GOLDMAN SACHS FLOATERS My analysis in those posts is very price sensitive. Since GSPRA is an equity preferred, senior only to common, and has rallied a great deal since the days when Financial Armageddon was on the tip of everyone's tongue, I decided to sell it and plow the proceeds into another GS floater at some point. GSPRA traded down to 9 in early March. This leaves me with the Synthetic Floaters tied to Goldman bonds: JBK (no longer a floater), GJS, GYB and PYT, all recent acquisitions over the past several months: Bought GYB/ Bought 50 PYT/ Bought 50 PYT GJS VS. PYT NOW

I hope that fraud is not the only growth industry left in the U.S.


  1. Re point 2, many compliments to you TennIndependent, for digging up this statement about non-deferral from Hommen. So far I only came across statements to the effect that ING did not expect to have to defer coupon payments, but this is more definite, in that it is clearly part of the agreements with the EC.

    As to their future size, I think you don't do ING (or the EC) justice by calling it "a regional bank for the Benelux countries". It is true that focus is in that region, but ING has branches in many more countries. I can understand though that when they will basically leave the US they aren't of much interest to you anymore.

    Once again, thanks, and keep up the good work of digging through to the facts.

  2. DUTCHPERPLEX: I view myself as a globetrotter type of investor so my interests go wherever there is bargain irrespective of the firms geographic location or any relationship to the U.S. Having branches in other European countries does not change my view of what ING will look like in 2014, and is shared by the author of this article in the WSJ: "ING will be essentially reduced to a Benelux regional bank"