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Scotiabank Grilled Over ABCP

'Plans Destroyed'

Bill Mah, Canwest News Service, with files from Reuters


Wednesday, March 05, 2008

EDMONTON - The head of Bank of Nova Scotia came face-to-face yesterday with the financial turmoil that has hit his bank harder than expected in recent months.

One of more than 1,400 investors who lost money in non-bank asset-backed commercial paper that Scotiabank sold to intermediary dealers confronted Rick Waugh, chief executive, at the bank's annual meeting here.

"Scotiabank has the duty and the expertise to know that it was selling a flawed savings product to unknowing retail investors like myself," said Reid Moseley, during a question-and-answer session for shareholders and proxy representatives.

Mr. Moseley said he bought commercial-paper investments from Vancouver-based Canaccord Capital Corp.

"Most of us were shocked when our cash was not there to buy our houses or our businesses or to care for our loved ones, or to pay simply for living expenses," he said. "Some of us had parked our money for as little as 60 days and now our plans are destroyed and our life savings from our jobs and businesses ? are literally hanging somewhere in the Internet."

Investors are suing Canaccord, which has named Scotiabank as a third party in the lawsuits, citing negligent misrepresentations, negligent failure to warn investors and breach of fiduciary duty.

Canaccord alleges that Scotia Capital, the group's investment-banking and capital-markets unit, received materially relevant information last July on the risk associated with the third-party paper's U.S. subprime exposure, which it didn't pass on to Canaccord.

The major banks and investors involved in the market are developing a plan to restructure the ABCP into longer-term investments.

But Mr. Moseley said many investors can't afford to wait. He urged Scotiabank to join the retailers to buy back the paper at par value or higher.

"It's a very tragic event that your investments are not made available to you," Mr. Waugh replied, adding the lawsuit limited what he could say. "We are still trying to cooperate and help with the solution.

"Our involvement was not in selling to the individual investors but rather to the dealer itself, and I think that is important," he added.

Scotiabank said yesterday its first-quarter earnings dropped 18% to $835-million, or 82 a share, from a year earlier, mainly because of substantial volatility in global financial markets.

The bank said it took charges of $158-million on its structured-credit portfolio and $80-million on its swap exposure to a monoline insurer. Provisions for credit losses, which are rising across Canada's bank sector after years of record lows, increased 23% to $91-million.

In other business, shareholders voted 39% in favour of having a non-binding say on what executives earn.

"That's a very high percentage, much more than you would ordinarily get on a shareholder proposal, and we will consider it very seriously," said Arthur Scace, board chairman.

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