Investors Scrutinizing the Regulators

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Burned investor confronts CEO
Clients' life savings left 'hanging somewhere on Internet' in ABCP disaster, Scotia president told

Bill Mah
The Edmonton Journal; with files from Reuters and Canwest News Service

Wednesday, March 05, 2008


EDMONTON - The head of Scotiabank came face to face Tuesday 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 president and CEO Rick Waugh at the bank's annual meeting in Edmonton Tuesday.

"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 at the Shaw Conference Centre.

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.

Candace Elliott, The Journal

CEO Rick Waugh speaks to Scotiabank's general meeting in Edmonton on Tuesday.

"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.

It claimed the bank began to drop its own holdings in the ABCP Structured Investment Trust III, while continuing to promote the paper.


involved in the market are developing a plan to restructure the ABCP into longer-term investments.

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

"It's a very tragic event that your investments are not made available to you," Waugh replied, adding that the lawsuit limited what he could say.

"We are still trying to co-operate and help with the solution," he said.

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

Scotiabank said on Tuesday its first-quarter earnings dropped 18 per cent, due mainly to substantial volatility in global financial markets.

Bank of Nova Scotia's first-quarter profit fell 18 per cent to $835 million, or 82 cents a share, from a year earlier, the bank said.

"While we had anticipated the first quarter to be difficult, results were weaker than expected," Waugh said. "This was due primarily to substantial volatility in global financial markets. Our exposure to these stressed markets is modest and well-diversified, but our portfolios did experience some valuation writedowns."

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 per cent to $91 million. Scotiabank said net income at its domestic banking unit rose 1.7 per cent to $367 million. Profit at Scotiabank's international operations, including the Caribbean, South America and Mexico, fell 10.7 per cent to $282 million.

Profit at Scotia Capital slumped 36 per cent to $187 million from a year earlier as trading revenue fell.

Scotiabank has targeted earnings-per-share growth of seven per cent to 12 per cent in 2008.

"Crises do end and this one will," Waugh said to shareholders. "We are well-positioned, as this particular crisis plays to our strengths of risk management, liquidity, strong capital and diversification."

In other business, shareholders at the country's third-largest bank voted 39 per cent 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 board chairman Arthur Scace.

Last week CIBC shareholders voted 45 per cent in favour of the same say-on-pay proposal, and RBC shareholders voted 42 per cent in favour.

The Edmonton Journal 2008

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