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Quebec, Alberta spurn ABCP action

Restructuring committee seeks $9.5-billion in government guarantees to backstop plan; provinces say it's Ottawa's responsibility


December 15, 2008

OTTAWA and MONTREAL — The Quebec and Alberta governments are balking at suggestions from Ottawa that they participate in talks aimed at restoring the health of a key component of Canada's financial system.

Quebec believes the issue involving asset-backed commercial paper could rear its head as early as Wednesday, when federal and provincial finance ministers meet in Saskatoon.

Quebec has much at stake. If a deal to salvage the $32-billion market for non-bank-sponsored ABCP collapses, the newly re-elected government of Premier Jean Charest faces a potential firestorm, as Quebec investors hold more than half of the paper.

Quebec's huge pension fund, the Caisse de dépôt et placement du Québec, holds $12.6-billion, while other government agencies and non-government financial institutions have billions riding on the outcome of the rescue plan.

A committee headed by lawyer Purdy Crawford has been working since April to try to work out a restructuring plan.

Last week, the committee said it was taking further steps to improve the plan, including a moratorium on calling collateral, and that it was seeking an additional $9.5-billion in guarantees from "external sources." Sources told The Globe and Mail the committee is looking for government backstopping, which would only be called on as a last resort, if credit markets essentially collapsed.

Faced with calls to guarantee as much as $9.5-billion in collateral, federal officials say the provinces need to be part of the solution to protect their heavily invested institutions.

Finance Minister Jim Flaherty has refused to comment on possible federal participation in the deal. But he has said the government wants to see a private-sector solution.

A Finance spokesman said yesterday it would be in the provinces' interest to be at the table, given the potential impact on provincial institutions. "The minister has consistently said a market-led restructuring is a preferred course of action for investors and capital markets in Canada, one that does not depend on taxpayer dollars," Chisholm Pothier said.

He added, however, that the federal government remains committed to "protecting financial stability and ensuring the health of Canada's capital markets." Asked whether the provinces should be involved in the ABCP restructuring, Mr. Pothier said: "Some affected parties fall under provincial jurisdiction, so it is in their interest to be engaged."

A spokeswoman for Quebec Finance Minister Monique Jérôme-Forget said yesterday the province has done its part, since the Caisse and others are already responsible for much of the $39-billion in funding facilities and collateral put up in the initial round of the rescue plan. "The Quebec government has no intention of getting involved in [providing] any eventual guarantees," Catherine Poulin said. Given the high exposure of institutions in the province to the paper, "it would not be desirable to further expose taxpayers" to additional risk, she added.

Ms. Poulin said the committee overseeing the ABCP restructuring has not directly approached Quebec for aid. But she suggested the topic is likely to come up at Wednesday's meeting, and Quebec intends to stand its ground. "We feel the federal government has the tools and is the best-positioned with the Bank of Canada" to help out, she said.

The Alberta government is also refusing to get involved with additional guarantees, despite the exposure of its provincially-owned ATB Financial.

"We feel that the federal government is ultimately responsible for the soundness and stability of Canada's financial system," Alberta Finance Department spokesman Bart Johnson said yesterday.

He said the province has "already stepped up" and supported ATB Financial by providing it with $550-million in additional collateral. "Alberta taxpayers have backstopped this and done their share," he said. "Federally regulated banks had a major role in the origins of this problem, so we think it's really one for the federal government to address."

A spokesman for the Caisse said the pension fund had no comment. Nor would he say whether the Caisse would like the province to join in the rescue. An ATB official could not be reached.

With files from reporters Katherine O'Neill in Edmonton and Steven Chase in Ottawa

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