Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House




Canaccord can't afford to buy out ABCP clients


John Greenwood


Monday, March 31, 2008



"We are not in a position to buy our clients out," Canaccord chairman Peter Brown says

Canada's leading independent brokerage would be "severely impacted" if it tried to buy back frozen asset-backed commercial paper it sold to retail clients, the chairman said in an e-mail to staff.

While many of the other banks and investment firms involved in the market bought out their retail clients, Canaccord Capital Inc. has so far resisted, arguing it can't afford to. It says it is trying to put together a deal under which retail noteholders would see their losses reduced.

"Clearly, we are not in a position to buy our clients out," Peter Brown, Canaccord's chairman and founder, said in an e-mail to employees.

"By any measure, we are more than adequately financed to conduct and grow our business. However, if we were to [make our clients whole], this would severely impact the regulatory capital required to do our business."

The note went on to advise staff that as a restructuring of the ABCP market moves into its final phase, Canaccord will likely become "the centre of media attention.... We will have another short period in the eye of the storm."

Canaccord clients hold about $269-million of the frozen notes, while the firm has an additional $32-million on its own books. Over the past six months, the company's shares have lost almost half their value, closing yesterday down 25 to $9.80 in Toronto.

The $35-billion market for ABCP seized up in early August after issuers were unable to roll maturing notes and banks that had agreed to provide emergency liquidity declined to step in. A group of banks and investment funds have launched a plan to restructure the market. Noteholders are set to vote on the plan at the end of the month.

Most of the stalled ABCP is held by banks and institutions, but some is owned by individuals.

In the wake of the market freeze, many of the big banks went through their client lists and bought back the notes. National Bank of Canada, for example, announced it would make whole all its retail investors up to $2-million. It also repurchased notes held by its senior executives.

Copyright 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

Click for more on ABCP