BY FIONA ANDERSON
Thursday, March 20, 2008
Investors in British Columbia who put their money - and faith -
in a Vancouver brokerage house, are now caught up in a financial
Capital Inc. put about 1,400 clients, many of them from B.C., in
ill-fated asset-backed commercial paper. Those investors, and
their almost $270 million worth of savings, have been stuck in a
legal limbo since the paper was frozen last August after
investors shunned the short-term debt because of concerns of
possible links to U.S. sub-prime mortgages.
And now with a proposal to
resolve the ABCP freeze expected to be sent to note-holders next
month, the investors are faced with a Catch-22.
CREDIT: Steve Bosch/Vancouver Sun
Yulan Wong of Vancouver is a Canaccord investor who has had her savings
Under the plan, reached March 17, the
short-term paper would be converted into new notes maturing as late as
2017. Once trading resumes, the new notes will likely trade at 60 cents
to 80 cents on the dollar, according to analysts. For that discount,
investors may have to give up the right to sue the banks, rating
agencies and investment dealers who got them into the mess in the first
Or they could hold what were supposed to be short-term investments for
eight years and hope to regain the full amount of their investment at
The alternative is to vote against the plan, see the value of the notes
drop even further, yet retain the right to spend thousands of dollars in
legal fees, and years in court, to try to get their money back.
It's a lose-lose situation for investors who thought they were in
risk-free, conservative investments.
Angela Speller, 61, is a homemaker who lives with her retired husband in
Victoria. Before they bought the ABCPs, the majority of their
investments were guaranteed investment certificates and Canada Savings
Bonds. The money was the couple's life savings, and so the investments
needed to be guaranteed, Speller said. They also needed to be liquid, so
that money could be easily withdrawn to supplement the couple's pension
income and to help their two children finish their education.
"My broker knew that these were savings and that I would not purchase
anything unless it was triple A, a sure investment," Spelling said.
But about a year before the ABCP freeze, her broker at Canaccord
recommended the new notes, which he assured Speller were no different
than GICs, except they provided a slightly better interest rate. And
Speller believes the broker thought that was true. But that means little
now that her and her husband's life savings are virtually frozen, and
may eventually be lost.
Speller would not give the amount at risk, but said it took 41 years to
"It was our life savings, it was a fair amount," Speller said.
Yulan Wong is a 60-year-old retired realtor in Vancouver who had cashed
out her securities in anticipation of her retirement. She also invested
money on behalf of her niece. Together, the two have about $300,000
frozen in their Canaccord accounts.
And like Speller, Wong wanted risk-free investments, that were easily
With her experience in the real estate market, and knowing assets like
houses can go up and down, Wong said she would never have knowingly
invested in ABCPs.
"I don't like risky stuff," Wong said.
Now she may have to sell her house just to get some cash. And her plan
to go to Australia to look after her mother is on hold.
"I don't have an income but a few hundred dollars," she said. "That's
why I'm in a very bad situation."
Wynne Miles, 55, has been lobbying to get a Parliamentary committee to
determine what went wrong. But the wording of the current proposal
before the House of Commons is forward-looking - how to prevent a
recurrence - rather than how to help those currently affected.
The Victoria woman and her husband are both self-employed so their
savings are their sole means of support when they retire. That's why
they kept the bulk of their investments, which are with Canaccord, in
government bonds and GICs until last July.
Miles hasn't made up her mind yet whether she will vote for or against
the proposal, but she knows lots of people who are opposed. After all,
the plan was developed by the pension funds, lenders and other
institutional investors, and is not suitable for retail investors, she
"We don't think the solution they're proposing is appropriate because we
don't have deep pockets," Miles said. "We can't wait five or eight years
to get our money back. We need our savings back now with interest."
Nor does she like having to give up her right to sue.
"I don't like it when someone takes my money and won't give it back and
then offers me an ultimatum," she said.
Miles complains that to date she hasn't had a say in how to solve the
mess. But now Miles and the other retail investors have the power to nix
the proposal because under the plan, and the related bankruptcy
proceedings, 50 per cent of noteholders must vote in favour. So while
the retail investors hold only a small portion of the total amount in
jeopardy, they outnumber the approximately 100 institutional investors
at least 15 to one.
If those institutional investors want to assure Miles doesn't vote
against the plan, they'll have to buy the ABCPs she holds with interest.
"Then I would no longer be a noteholder and I would no longer have a
vote," she said.
"So if they buy out the retail holders the larger institutions would be
assured of a majority on the vote," Miles said. "So buy us out," she
Calgary-based Canaccord customer Brian Hunter has set up a Facebook site
for individuals holding ABCPs. He too urges the institutional investors
to buy out the little guys.
Why would investors with $12 billion at stake risk having small
investors vote against it, he asked.
And that's his dream, that he gets bought out and gets his money back.
"Faced with no other alternative I would vote against it and take my
chances at suing," Hunter said.
But Canaccord says it can't afford to do that.
"We don't have the ability or the capital base to buy out [the paper]
directly from our clients," Canaccord's chief operating officer Mark
Maybank said in a telephone interview with Bloomberg.
"I have huge amount of empathy for them in what's been a structural
collapse of part of the Canadian capital markets,'' he added. "We're
doing everything we can to help."
Maybank said Canaccord was working on a "relief program" for its
"I'm optimistic that we're going to be able to post a successful
restructuring, identify market participants, potential buyers that we
can work with to address the needs of our clients,'' he said.
Last week, Canaccord also hired an ABCP expert to advise its clients on
But Canaccord's position contrasts with that of the National Bank of
Canada, the country's sixth-biggest bank, which agreed last year to buy
back about $2 billion of the commercial paper held by its consumer
clients. Vancity and other financial institutions have also taken that
Credential Securities Inc., which offers its services to credit unions,
also has an unknown number of retail clients holding ABCPs. Jane
Mitchell, a spokeswoman for Credential in Vancouver, did not return a
call from Bloomberg seeking comment.
Exact details of the restructuring plan have yet to be finalized, but
investors are expected to be asked to vote on the proposal next month.
With files from Bloomberg