Investors Scrutinizing the Regulators

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Crawford feels investors' anger


March 31, 2008 at 9:21 PM EDT
MONTREAL and TORONTO — The small investors suddenly have the power in the asset-backed commercial paper market, and they're letting the big ones know it.

Individual investors packed rooms in Montreal and Toronto yesterday to tell the committee of big holders that's pitching a restructuring plan for Canada's frozen $32-billion commercial paper market that there's a lot of work yet to be done before the plan will pass a vote that small holders will dominate.

Investor Mark Wasserman speaks at the ABCP investor

hearing in Montreal Monday

The meetings were sometimes testy, and investors didn't hide their anger, but committee chairman Purdy Crawford said he understands that the ABCP holders aren't just “venting” – they have serious demands and they are willing to use their clout to achieve them. Those demands include being bought out at 100 cents on the dollar, avoiding losses that other, bigger investors may be forced to take.

“If you have a result you want to achieve, you can't sit around and say ‘this is nice,' you have to put the cards on the table,” Mr. Crawford said.

He reiterated that he is “optimistic” a deal can be worked out to win the support of small investors and that “we're going to do what we can within reason” to help them.

There are believed to be more than 1,800 individuals stuck holding about $400-million of frozen paper, most of them clients of Canaccord Capital Inc., who can determine the fate of the restructuring plan because they far outnumber the big investors who negotiated the proposal. A vote will be held on April 25, and a majority of those who cast a ballot must be in favour of the plan for it to pass.

Canaccord is working on a plan to aid its clients, but nothing is settled, leaving the committee facing the prospect of heading west to Calgary and Edmonton today to confront yet more angry holders with no answers for their demands.

“I'm looking for a better solution than the one being offered,” Mark Wasserman, who put money into ABCP through Canaccord, said in an interview in Montreal.

Investors also took issue with the committee's presentation, which they said was tough to follow.

“I found your presentation interesting but totally incomprehensible,” Sandy Currie, an investor who said he holds about $205,000 of ABCP, told Mr. Crawford's team in Toronto. “Take it home, show it to your wives, see if they understand it.”

Once again, the issue of releases that would absolve all players in the restructuring of any legal liability drew the ire of investors.

“I am better off, in my mind, taking my loss today and exercising my legal rights against my bank,” said investor Hy Bloom, who attended both investor meetings yesterday. His two holding companies have filed a $12-million lawsuit against National Bank in Quebec Superior Court, alleging misrepresentation.

At times, the back-and-forth between the small investors and Mr. Crawford revealed the frustration that has built since the restructuring ordeal began.

“You cross-examined me long enough, sir, you can sit down now,” Mr. Crawford said to one questioner at a meeting in Toronto yesterday morning.

The meetings are being closely monitored by Ottawa. Yesterday, Liberal finance critic John McCallum said he had decided to postpone asking the House of Commons finance committee to hold hearings on third-party ABCP because he did not want to interfere in the process.

One person at the Toronto meeting, who asked not to be named, suggested it's unfair that individual investors are able to jeopardize the plan.

The company he represents has more than $30-million in third-party ABCP, and most of that is in its pension plans.

“I do have sympathy for these retail investors, but I also think that it is important to note that the institutional investors largely represent pension plans … ,” he said in an e-mail reply to questions. “If the restructuring plan fails and assets are sold at 50 cents on the dollar (if we are lucky), Canadian pension plans stand to lose well over $10-billion. That's in the pension plans of ‘the average Joe,'” he wrote.

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