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Credit union's position worries investor
No indemnity for lost investment made through Credential Securities

Saturday, March 22, 2008

Morris Baumel says he is deeply disappointed with his credit union.

Baumel, of Qualicum Beach, is one of an unknown number of credit union members across Canada who were put into ill-fated asset-back commercial paper through Credential Securities Inc., the credit unions' investment dealer. Yet now that the paper has gone bad, Baumel said the credit union is not willing to give him his money back.

Baumel is in real estate, so he has enough risky investments. That's why he wanted his savings to be in something 100-per-cent safe. At first it was in an account at the credit union, but that earned no interest, so the credit union -- Coastal Community Credit Union -- advised him to go to Credential. There he put his money in what he believed was a high-interest savings account.

But when Baumel went to withdraw $100,000 of his $365,000 portfolio last August to lend to a colleague as part of a business deal, he was given the bad news -- the money had been frozen.

The Canadian $33-billion ABCP market froze when investors shunned the short-term debt because of concerns of possible links to U.S. subprime mortgages. Under an agreement reached earlier this week by lenders, pension funds and other institutional investors, the short-term notes will be replaced by notes that will mature as late as 2017. Noteholders will be asked to vote on the proposal next month.

Baumel had never heard of commercial paper, but if he had been told he was in asset-backed or mortgage-backed investments, he says he would have turned it down. He already had enough exposure to that risk with his real estate investments, Baumel said.

What makes Baumel "profoundly disappointed" is that despite the fact he told Credential to invest in something that was 100-per-cent safe, he ended up with ABCPs. And the credit union has refused to assure him he won't be out of pocket when the issue is resolved, Baumel said.

"They're taking no responsibility for it at all," Baumel said.

Baumel was once on the board of a credit union.

"And we prided ourselves on being for the little guy," Baumel said. "And [the credit unions] eat out on this. Yet they're just about the last standing company in the country that hasn't bailed out their retail investors."

Other than Credential, Canaccord is the only investment dealer known to have not yet made a deal to indemnify its clients. While it is unknown how much Credential customers hold, Baumel was told that his credit union has about 12 clients in his situation, with a total of between $2 million to $3 million invested.

Vancouver-based Canaccord has 1,400 clients across the country who own $269 million of the paper.

Vancity is one credit union that has already made arrangements to protect its members, who invested $5 million in ABCPs on the credit union's advice.

Vancity CEO Tamara Vrooman said she was proud of that decision.

"I think that speaks to the kind of organization that Vancity is and that no matter what, we'll look after our members' interests first," Vrooman said in an interview in February.

Representatives from Canaccord and Credential were not available on Good Friday for comment.

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