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Tuesday, 12 May 2009

A margin call from Comsec Margin Lending

As feared, the wind-up of the Commonwealth Diversified Share Fund has resulted in me getting a margin call on my Comsec margin lending account. I had expected it might happen when the CDF shares ceased trading on 18 May, and had phoned the Comsec help desk about this last week. They didn't call me back as they had promised, and yesterday they changed the margin value of CDF shares from 70% to 0% without any warning, resulting in a $30,000 margin call.

I managed to get through to Comsec this morning (after being on hold for ten minutes) and they confirmed that I had to meet the $30,000 margin call by 2pm or they *could* sell off some of my shares, although they couldn't even confirm which of my share holdings would sold (apparently it is "random" - although I find that hard to believe). I don't want to sell my CDF shares as they are trading very thinly and at a 10% discount to NAV since the announcement of the fund termination. I also don't have the required amount of cash sitting in my credit union savings account so I had to hunt around for a quick solution.

I initially thought I could take advantage of the 6.9% balance transfer offer Citibank sent me last week, but the funds transfer into my margin loan account could take up to five business days, so it wouldn't prevent Comsec selling off my shares. Instead I had to redraw $30,000 from our home loan account and transfer it into my St George Portfolio loan account, from where I could BPay the funds to Comsec. It took another two phone calls to Comsec to get the BPay details to make the payment, and then to provide them with the St George BPay receipt number to prove that I had met the margin call before 2pm.

I then applied for a Citibank Redicredit $50,000 balance transfer into my St George portfolio loan account. When the funds arrive I'll repay the $30,000 into our home loan account (after checking there are no excess repayment penalties on that account), and the remaining $20,000 will reduce my Portfolio Loan balance. I'll keep those funds available for future investments.

When the CDF fund pays out the realised NAV amount to unit holders on 18 June I'll use the money to pay off the Citibank Redicredit debt. As I'll only be using the Citibank loan for about four weeks, the interest cost will end up being around 0.53% of the total amount borrowed. That is a lot less than the 10% NAV discount if I sold the CDF shares. Of course that calculation ignores any gain or loss in NAV from now until the fund termination date of 1 June.

Since both Commonwealth Diversified Share Fund and Comsec Margin Lending are owned by Commonwealth Bank, I'm extremely unimpressed by the level of customer service provided by Comsec. Providing me with the information I requested last week, or at least providing some advance notice that CDF margin value was going to be changed to 0% on 11/5, should have been the minimum level of customer support.

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