Investors Scrutinizing the Regulators

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Fox Guarding the Hen House

   

 

 


Investors caught in commercial-debt crisis
Committee hears accounts of huge losses

 

Gordon Jaremko

 

Tuesday, April 01

 

Vladimir Salyzyn, 78, said he kicks himself for being out $900,000, because he has a commerce degree, teaches economics and should have known better where to put his money.

 

But there was no hint ABCP spelled trouble, Murray and Cindy Candlish said on Tuesday. The couple reported their life savings of $350,000, like Salyzyn’s cash from selling a farm, are locked away from them in asset-backed commercial paper.

 

Marc Bence/Edmonton Journal

Purdy Crawford (left) spoke to investors about an ABCP rescue plan at the Sutton Place Hotel in Edmonton on Tuesday.

“If you’re puzzled I can understand it — I was puzzled for at least two months,” Bay Street lawyer Purdy Crawford told an Edmonton meeting of ABCP casualties in recalling.

 

As head of Canada’s national ABCP restructuring committee, Crawford emphasized its job is to salvage value from the securities instead of trying to lay blame for a prolonged financial crisis since issuers of the paper started failing to keep payment promises last August.

 

Crawford’s group is attempting to clear up confusion and losses left over from 43 varieties of securities created by financial institutions and sold across the country.

 

ABCP’s fatal flaws showed up when investors worried about a spreading American mortgage market meltdown tried to cash in the Canadian paper.


The certificates gave off no whiff of risk until the moment they failed because they only paid at best a fraction of a percentage point more interest than conventional savings deposits, said Peter Myers, facing up to personal losses that took him by complete surprise.

 

The main attraction of ABCP was its billing as safe short-term investment alternatives that could be turned back into cash in as little as 30 days.

 

“I was told it was Triple-A rated and guaranteed by the banks,” said Myers, a 64-year-old engineer who reported the financial crisis that halted ABCP withdrawals froze his “substantial” retirement nest egg.

 

“How did we ever get into this?” asked Phil Sims, adding he is out $150,000. “Why would anybody invest in subprime mortgages? My10-year-old son would know better.”

 

Salyzyn, the Candlish family, Myers and Sims stepped forward as Edmonton-area examples of an estimated 1,800 to 2,000 Canadians who own “retail” or personal ABCP finance products.

 

The troubled investors filled a downtown hotel meeting room and fired questions at Crawford and his committee. The group held Edmonton and Calgary meetings on a national tour that includes distributing tonnes of telephone directory-sized information books explaining ABCP and the rescue plan.

 

Crawford repeatedly assured personal investors they are a high priority and their frustration over the complexity and slow pace of the restructuring is understood.

 

“It hurts. It sucks. It scares people,” the Candlishes said. “We’re just trying to save our homes and get our kids through college.”

 

The bulky information tome alone is annoying, Crawford agreed in an interview. “If I’d been in their position and somebody gave it to me, I’d probably throw it across the room and say the hell with this.”

 

Retail investors own an estimated $317 million in ABCP, or less than one per cent of a total $35 billion in frozen certificates. The paper represents money-market assets from real-estate mortgages to receivable balances owing on credit cards and auto-lease contracts.

 

But the personal savings group will have clout in a vote on the restructuring plan April 25, said committee member Stephen Halperin, a Toronto lawyer.

 

The court-supervised process requires approval by a double majority representing two-thirds of total ABCP face value and 50 per cent, plus one of its owners by head count.

 

“A note holder who has $1,000 invested has the same vote as a note holder who has $1 billion invested,” and personal investors “vastly outnumber” institutional and corporate owners, Halperin said.

 

Repayment of ABCP deposits is projected to take years and recover as little as two-thirds of their value. Investors also give up rights to sue creators of the certificates if the restructuring passes.

 

But the Canadian paper still has value compared to collapsing U.S. mortgage markets, and the bleak alternative to a restructuring agreement is worse losses and years of lawsuits, the committee warned.

gjaremko@thejournal.canwest.com

 

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