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Investors angered by ABCP plan

‘If I could turn back time, I would’: advisor


Sean Silcoff

Monday, March 31, 2008


Graham Hughes for National Post

ABCP investors attend the restructuring briefing by Purdy Crawford's committee.


As investor after investor took to the microphones Monday to pepper Bay Street lawyers and bankers on the biggest restructuring in Canadian history, one investment advisor sat at the back of a packed meeting room, reflecting with remorse on his small part in the debacle.


Before the $35-billion market for non-bank asset-backed commercial paper (ABCP) melted down last August, the 33-year-old Montrealer, who asked not to be identified, was an advisor with Canaccord Capital who prided himself on being a "very conservative and headache-free" investor, placing half of his clients' money in money market funds and bonds.

When the ABCP market collapsed last August -- leading to a complex, seven-month restructuring that is being presented to investors in a series of cross-Canada meetings this week, including the meetings in Montreal and Toronto Monday -- 10 of the advisor's clients were left holding a total of about $1.3-million of the paper, representing about 1% of their total assets invested with him.

"If I could turn back time I would, and I would never have suggested this had all the facts been presented to me beforehand," the advisor said. "I've suffered a great deal for my clients. This business is based on trust. I never expected to be hit with something like this."

The advisor's clients are among about 1,400 Canaccord customers who between them invested $269-million in ABCP. Many such small investors -- 1,800 to 2,000 in total -- are angry what they thought were highly liquid and low-risk investments turned into such duds.

That is due to flawed liquidity support deals that were unique to Canada and which failed when demand for the short-term paper – which must be rolled over every one to three months – collapsed last August.

The market has been frozen and if the paper is restructured into long-term notes, as envisioned by the process, holders will be left with investments that will likely be worth 40¢ to 60¢ on the dollar when it begins trading. If the process fails, the assets could be worth almost nothing, as the head of the restructuring committee, veteran Bay Street lawyer Purdy Crawford, told hundreds of investors at the two meetings Monday.

Investor dissent has been mounting, with small holders threatening to kill the deal unless their brokers pony up enough cash to limit their losses. They have that ability, as each individual investor has one vote, the same as each of the 17 institutions behind the restructuring that between them own the bulk of the paper.

The anger of clients was palpable as investors -- who would lose their right to sue anyone involved by voting for the deal -- addressed Mr. Crawford and other advisors to a committee of large institutional investors that put together the restructuring without consulting the small investors. During one testy exchange Mr. Crawford said, "I feel I am being cross-examined here."

Hy Bloom, a businessman who is suing National Bank of Canada for selling him ABCP, said "my bank should not be allowed to take advantage under" a court-monitored restructuring process. "Why should my bank be off the hook? How could they sell me these things and how can we sit here and accept this settlement? It seems to me this is wrong. It's a flawed process."

As the Canaccord broker – who has since left the firm to join another investment dealer – listened, he said "these are concerns I've had for my clients as well. When he placed his clients in the ABCP he wasn't aware of the liquidity problem, saying "the way the product was explained to me by our bond desk, it was a Scotia product that was guaranteed by Bank of Nova Scotia's assets. I believe it was not well represented to the brokers, and the ultimately to the retail clients." He says he left in part because Canaccord didn't bail out its clients, as some dealers have.

Canaccord president and chief operating officer Mark Maybank confirmed a plan to compensate the firm's clients for losses is in the works, and "we continue to diligently work toward a solution. We intend to help our clients the best we can and we hope to have more definitive details in the near term."

In the meantime, some of the former Canaccord advisor's clients are sticking with him. About seven of the 10 who held ABCP have come over to his new firm, including Montrealer Simon Jegehr, who peppered Mr. Crawford with questions Monday. "I don't hold [the advisor] personally responsible," Mr. Jegehr said.

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