John Greenwood And Grant Surridge
Monday, March 31, 2008
Steve Bosch/Canwest News
Yulan Wong, a retired real
estate agent, has $300,000
invested in frozen ABCP.
Nearly eight months after
$35-billion of asset-backed
commercial paper seized up, the
faces of the losses are becoming
Individual noteholders from across
the country are now coming out of
the woodwork, and networking on
Facebook, to tell their stories of
devastating losses from risky
investments that few people really
There are an estimated 1,600 of
these retail investors, according to
insiders. They are frustrated and
angry and in no mood to make
concessions. Yet the future of a
crucial restructuring of the
asset-backed commercial paper market
rests in their hands.
Having frozen the market for these
notes back in August to plot a
rescue plan, the banks and financial
institutions involved announced
their solution earlier this month:
New notes would be created and the
entire restructuring placed in
bankruptcy protection. This would
allow the group to move through its
final, delicate stages without
external distractions such as
The final vote for the restructuring
plan will take place on April 25. It
must be approved by a majority of
noteholders. Since there are only
around 200 corporate and
institutional investors, the fate of
the biggest workout in Canadian
corporate history may now rest in
the hands of the little guy.
Much hangs in the balance. A "no,"
vote means the restructuring fails
and the trusts that issued the
stalled notes go into receivership,
possibly triggering a financial
meltdown, analysts warn.
If the restructuring is approved,
the markets would carry on and the
notes unfrozen. But according to a
recent RBC Capital Markets research
report, some of the notes may have
lost 80% of their value.
And there's a trade-off: A clause in
the deal would provide legal
protection to all the banks,
investment dealers and others who
created and sold the ABCP. If
investors agree to the
restructuring, they must also
promise not to sue to get their
Beginning today in Toronto, Purdy
Crawford, the Bay Street lawyer who
heads up the investors committee,
will be travelling to major Canadian
cities to persuade investors to sign
on to the plan. He faces an uphill
'LITTLE GUYS SPEAK-OUT'
The committee that has put together
a plan to restructure the market for
the asset-backed commercial paper in
Canada, frozen since August, today
begins hawking its merits to those
who will vote on it on April 25.
What the committee, headed by Purdy
Crawford, didn't reckon on are the
1,600 or so small retail investors
who are faced with potentially
losing their life savings.
Financial Post's John Greenwood and
Grant Surridge look at six of their
Ron Lawley will never look at
investment dealers the same way
again. A retired computer
technician, Mr. Lawley lives in
Nanaimo, British Columbia, where
until recently he and his wife
enjoyed a modest but satisfying
lifestyle. Then came last summer's
credit crunch, and for the first
time Mr. Lawley learned the term
"asset-backed commercial paper." The
education, he says, came from his
broker, who informed him last
September that he owned about
$210,000 of the stuff, but not to
worry, that it was only a "glitch"
in the market that was making his
money --about one-quarter of his
"This is absolutely ridiculous," he
said in an interview. "I'm 72, I've
worked all my life, I've never had a
day without a job and this is how I
get treated. This stuff should never
have been sold to people like me."
Ron Lawley, a retired
computer technician has
$210,000 in ABCP.
He is especially upset about the way
he came to own an asset he still
doesn't fully understand. Having
told his broker to put his money in
government bonds, he was surprised
to discover unfamiliar names of
these notes on his statement. Last
week, someone sent him a copy of the
nearly 400-page document that
outlines how the ABCP restructuring
will work. "I'm not even going to
read it." he says. "I just want my
money back." John Greenwood
It was August when Brian Iler first
read about ABCP while he was on
vacation. While technical, the
stories said people lost money. The
Toronto-based lawyer felt sorry for
When he got home there was a letter
from his broker. It was to say his
account held about $229,000 of ABCP.
"I was totally shocked," recalls Mr.
Iler, who says he told his broker he
wanted secure investments.
After asking questions, he
eventually got hold of a DBRS report
that "clearly describes a very risky
For his part, the broker insisted he
had followed instructions and that
all would be fine in the end. But,
at 62, Mr. Iler figures he may end
up having to delay retirement .
What bothers Mr. Iler most, however,
is the way retail investors have
been treated. He reckons the little
guys only ended up with the power in
this restructuring because the banks
were so focused on finding a
solution that worked for them that
they failed to see what was given
"When the penny dropped, there must
have been someone with a lot of egg
on his face," Mr. Isler says. J.G.
Yulan Wong was successful as a
Vancouver real estate agent before
she retired, but now she counts her
pennies when she goes to the
About two years ago, her broker
started putting Ms. Wong's savings
into ABCP, saying it was for
"She said it was guaranteed by the
Royal Bank of Scotland and Barclays
Bank," Ms. Wong says.
Ms. Wong, who is 62, says she has
about $300,000 tied up in illiquid
ABCP. Just over half the money in
Ms. Wong's account was savings she
planned to live on. The other half
belongs to her niece. When her
parents died several years ago, Ms.
Wong became her guardian. "I told
her I don't have the money, I can't
give it back to you," she says.
"It's caused a lot of stress in the
"I've worked very hard all my life,
I've never complained. But this is
Unable to persuade her broker to buy
back the investment. Ms. Wong is
pinning her hopes on a bid by small
note-holders to try to force a
better deal from those trying to
restructure the market. J.G.
"You can't get your money, man. It's
frozen." That's what Reid Moseley's
friend and broker told him last
August when he went to withdraw the
cash he had temporarily parked in ABCP while waiting to close the
purchase of his dream home in the
The 61-year-old retired teacher and
father of four says his broker said
there was no risk, that he would get
a better return than with Treasury
Bills. He figured it was a
no-brainer -- better than having his
$50,000 nest egg sitting in the bank
not earning interest.
Now he's had to take out a $30,000
line of credit to pay the
bridge-loan tied to his new home.
It's sucking up capital from his
hobby business selling antiques, and
he doesn't know how much he will get
He doesn't blame his broker for the
fiasco, but is furious the major
banks will not come to the rescue of
small investors who ended up with
money in investments those banks
were supposed to back in a crisis.
Reid Moseley, a retired
teacher, has $50,000
invested in ABCP
Mr. Moseley feels cut off from a
restructuring process conducted
behind closed doors by lawyers and
bankers who don't know what it is
like to be in his situation. "That
$50,000 represents my life and my
wife's life work in terms of what we
were able to put aside," says Mr.
Moseley. Grant Surridge
Nick Kovics was specific in the
instructions he gave his broker
about the $100,000 he decided to
invest. "This is money I cannot
lose," he says. "This is my safety
net." The 34-year-old chemical
engineer and part-time MBA student
had always managed his own
investments, but on the
recommendation of friends, he went
with a broker who told him that
putting the money in asset-backed
commercial paper was safe.
He first heard about the frozen ABCP
by reading the newspaper. Even when
his broker confirmed the situation
he was not initially worried. But he
got anxious as as each extension and
deadline passed. "It's got me
nervous now." He's wondering when
and if he'll get his money back.
Unlike other investors who are close
to retirement, Mr. Kovics can afford
to wait out a lengthy lawsuit. He'll
vote against the proposal unless all
his money is returned.
Kovics, a chemical engineer, found out he had $100,000 in
But what's most galling for Mr.
Kovics is that he invested the money
at the end of July, two weeks before
the market for the paper froze up.
He says that as a young investor, he
has always been willing to take on
risk and has managed his portfolio
through bear markets before. The
first time he chose to trust some
money with a professional, he is
suffering what may be his biggest
loss ever. "The irony is
Mike and Wynne Miles are anguishing
over how to vote on the ABCP
restructuring plan. In their late
50s, the couple has a significant
portion of their savings tied up in
the paper. Since both are
self-employed, they have no pension,
and they have two kids they're
putting through university. They say
their broker didn't even tell them
he was putting their retirement
money into ABCP.
Now they worry that if they vote for
the deal, they'll forfeit their
right to sue and be forced to wait
years to get their money back, with
no interest earned in the meantime.
"We can't afford to wait that long,"
Ms. Miles says softly. The couple
are also terrified of what voting
"no" might mean: That the deal
collapses and they lose everything.
The couple plans to fly to Vancouver
this Wednesday to hear Mr. Crawford
pitch the restructuring plan to
investors, although they are worried
they won't know what to ask.
Mike and Wynne Miles have a
significant amount of their
savings tied up in ABCP.
Mr. Miles also questions the money
being spent trying to fix the ABCP
mess. "All sorts of people are being
paid to fix this thing, and it's the
same people who broke it in the
first place." G.S.