

Currently released so far... 12553 / 251,287
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
2011/02/12
2011/02/13
2011/02/14
2011/02/15
2011/02/16
2011/02/17
2011/02/18
2011/02/19
2011/02/20
2011/02/21
2011/02/22
2011/02/23
2011/02/24
2011/02/25
2011/02/26
2011/02/27
2011/02/28
2011/03/01
2011/03/02
2011/03/03
2011/03/04
2011/03/05
2011/03/06
2011/03/07
2011/03/08
2011/03/09
2011/03/10
2011/03/11
2011/03/13
2011/03/14
2011/03/15
2011/03/16
2011/03/17
2011/03/18
2011/03/19
2011/03/20
2011/03/21
2011/03/22
2011/03/23
2011/03/24
2011/03/25
2011/03/26
2011/03/27
2011/03/28
2011/03/29
2011/03/30
2011/03/31
2011/04/01
2011/04/02
2011/04/03
2011/04/04
2011/04/05
2011/04/06
2011/04/07
2011/04/08
2011/04/09
2011/04/10
2011/04/11
2011/04/12
2011/04/13
2011/04/14
2011/04/15
2011/04/16
2011/04/17
2011/04/18
2011/04/19
2011/04/20
2011/04/21
2011/04/22
2011/04/23
2011/04/24
2011/04/25
2011/04/26
2011/04/27
2011/04/28
2011/04/29
2011/04/30
2011/05/01
2011/05/02
2011/05/03
2011/05/04
2011/05/05
2011/05/06
2011/05/07
2011/05/08
2011/05/09
2011/05/10
2011/05/11
2011/05/12
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Apia
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Auckland
Consulate Amsterdam
Consulate Adana
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belmopan
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Ciudad Juarez
Consulate Chennai
Consulate Casablanca
Consulate Cape Town
Consulate Calgary
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dili
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Helsinki
Embassy Harare
Embassy Hanoi
Consulate Ho Chi Minh City
Consulate Hermosillo
Consulate Hamilton
Consulate Hamburg
Consulate Halifax
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kingston
Embassy Kigali
Embassy Khartoum
Embassy Kathmandu
Embassy Kampala
Embassy Kabul
Consulate Kolkata
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Ljubljana
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lahore
Consulate Lagos
Mission USOSCE
Mission USNATO
Mission UNESCO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Mbabane
Embassy Maputo
Embassy Manila
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Mumbai
Consulate Montreal
Consulate Monterrey
Consulate Milan
Consulate Melbourne
Embassy Nicosia
Embassy Niamey
Embassy New Delhi
Embassy Ndjamena
Embassy Nassau
Embassy Nairobi
Consulate Naples
Consulate Naha
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Of Spain
Embassy Port Louis
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Suva
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate St Petersburg
Consulate Shenyang
Consulate Shanghai
Consulate Sapporo
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
Consulate Toronto
Consulate Tijuana
USUN New York
USEU Brussels
US Office Almaty
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Embassy Vilnius
Embassy Vienna
Embassy Vatican
Embassy Valletta
Consulate Vladivostok
Consulate Vancouver
Browse by tag
APECO
ASEC
AMGT
AFIN
APER
ACABQ
AORC
AEMR
AF
AE
AR
AGMT
AU
AY
ABLD
AS
AG
AJ
APCS
AX
AM
AMEX
ATRN
ADM
AMED
AFGHANISTAN
AZ
AL
ASUP
AND
ARM
ASEAN
AFFAIRS
AQ
ATFN
AMBASSADOR
AODE
APEC
ACBAQ
AFSI
AFSN
AO
ABUD
AC
ADPM
ADCO
ASIG
ARF
AUC
ASEX
AGAO
AA
AER
AVERY
AGRICULTURE
AIT
AADP
ASCH
AORL
AROC
ACOA
ANET
AID
AMCHAMS
AINF
AMG
AFU
AN
ALOW
ASECKFRDCVISKIRFPHUMSMIGEG
ACS
ADANA
AECL
ACAO
AORG
AGR
BEXP
BR
BM
BG
BL
BA
BTIO
BO
BP
BC
BILAT
BK
BU
BD
BRUSSELS
BB
BF
BBSR
BIDEN
BX
BE
BH
BT
BY
BMGT
BWC
BTIU
BN
CA
CASC
CFED
CO
CH
CS
CU
CE
CI
CM
CMGT
CJAN
COM
CG
CIS
CVIS
CR
CKGR
CHR
CVR
COUNTER
CIA
CLINTON
CY
CPAS
CD
CBW
COUNTERTERRORISM
CITEL
CDG
CW
CODEL
COUNTRY
CLEARANCE
COE
CN
CARICOM
CB
CONDOLEEZZA
CWC
CACS
CSW
CIDA
CIC
CITT
CONS
CL
CACM
CDB
CDC
CAN
CF
CJUS
CTM
CBSA
CARSON
CT
CLMT
CBC
CEUDA
CV
COPUOS
CTR
CROS
CAPC
CAC
CNARC
CICTE
CBE
ECON
ETRD
EIND
ENRG
EC
ELAB
EAGR
EAID
EFIS
EFIN
EINV
EUN
EG
EPET
EAIR
EU
ELTN
EWWT
ECIN
ERD
EI
ETTC
EUR
EN
EZ
ETC
ENVI
EMIN
ET
ENVR
ER
ECPS
EINT
EAP
ES
ENIV
ECONOMY
EXTERNAL
EINN
EFTA
ECONOMIC
EPA
EXBS
ECA
ELN
ETRDEINVECINPGOVCS
ENGR
ECUN
ENGY
ECONOMICS
ELECTIONS
EIAR
EINDETRD
EREL
EUC
ECONEFIN
EURN
EDU
ETRDEINVTINTCS
ECIP
ENERG
EFIM
EAIDS
EK
ETRDECONWTOCS
EINVETC
ECONCS
EUNCH
ESA
ECINECONCS
EUREM
ESENV
EFINECONCS
ETRC
ENNP
EAIG
EXIM
EEPET
EINVECONSENVCSJA
EUMEM
ETRA
ERNG
ETRO
ETRN
EINVEFIN
ICTY
IN
IS
IR
IC
IZ
IA
INTERPOL
IAEA
IT
IMO
IO
IV
ID
IRAQI
IEA
INRB
IL
IWC
ITU
ICAO
ISRAELI
ICRC
IIP
IMF
IBRD
ISLAMISTS
ITALY
ITALIAN
ILO
IPR
IQ
IRS
IAHRC
IZPREL
IRAJ
IDP
ILC
ITF
ICJ
IF
ITPHUM
INMARSAT
ISRAEL
IACI
IBET
ITRA
INR
IRC
IDA
ICTR
IGAD
INRA
INRO
IEFIN
INTELSAT
INTERNAL
INDO
ITPGOV
KWMN
KSCA
KDEM
KTFN
KIPR
KCRM
KPAL
KE
KPAO
KPKO
KS
KN
KISL
KFRD
KJUS
KIRF
KFLO
KG
KTIP
KTER
KRCM
KTIA
KGHG
KIRC
KU
KPRP
KMCA
KMPI
KSEO
KNNP
KZ
KNEI
KCOR
KOMC
KCFC
KSTC
KMDR
KFLU
KSAF
KSEP
KSAC
KR
KGIC
KSUM
KWBG
KCIP
KDRG
KOLY
KAWC
KCHG
KHDP
KRVC
KBIO
KAWK
KGCC
KHLS
KBCT
KPLS
KREL
KCFE
KMFO
KV
KFRDKIRFCVISCMGTKOCIASECPHUMSMIGEG
KFTFN
KVPR
KTDB
KSPR
KIDE
KVRP
KTEX
KBTR
KTRD
KICC
KCOM
KO
KLIG
KDEMAF
KMRS
KRAD
KOCI
KSTH
KUNR
KNSD
KGIT
KFSC
KHIV
KPAI
KICA
KACT
KHUM
KREC
KSEC
KFRDCVISCMGTCASCKOCIASECPHUMSMIGEG
KCMR
KPIN
KESS
KDEV
KNAR
KNUC
KPWR
KENV
KWWMN
KWMNCS
KPRV
KOM
KBTS
KCRS
KNPP
KWNM
KRFD
KVIR
KTBT
KAID
KRIM
KDDG
KRGY
KHSA
KWMM
KMOC
KSCI
KPAK
KX
KPAONZ
KCGC
KID
KPOA
KIFR
KFIN
KWAC
KOMS
KCRCM
KNUP
KMIG
KNNPMNUC
KERG
KTLA
KCSY
KJUST
MOPS
MARR
MASS
MNUC
MX
MCAP
MO
MR
MI
MD
MK
MA
MP
MY
MTCRE
MOPPS
MASC
MIL
MTS
MLS
MILI
MAR
MU
MEPN
MAPP
MTCR
MEPI
MZ
MEETINGS
MG
MW
MAS
MT
MCC
MIK
ML
MARAD
MV
MERCOSUR
MTRE
MPOS
MEPP
MILITARY
MDC
MQADHAFI
MUCN
MRCRE
MAPS
MEDIA
MASSMNUC
MC
NZ
NZUS
NL
NU
NATO
NP
NO
NIPP
NE
NH
NR
NA
NPT
NI
NSF
NG
NSG
NAFTA
NC
NDP
NEW
NRR
NATIONAL
NT
NS
NASA
NAR
NV
NORAD
NSSP
NK
NPA
NGO
NSC
NATOPREL
NW
NPG
NSFO
OPDC
OTRA
OIIP
OREP
OVIP
OSCE
OEXC
OIE
OPRC
OAS
OPIC
OTR
OMIG
OSAC
OFFICIALS
OECD
OSCI
OBSP
OFDA
OPCW
ODIP
OFDP
OES
OPAD
OCII
OHUM
OVP
ON
OIC
OCS
PHUM
PREL
PGOV
PINR
PTER
PARM
PREF
PM
PE
PINS
PK
PHSA
PBTS
PRGOV
PA
PORG
PP
PS
PGOF
PL
PO
PARMS
PKFK
PSOE
PEPR
PAK
POL
PPA
PINT
PMAR
PRELP
PREFA
PALESTINIAN
PBIO
PINF
PNG
PMIL
PFOR
PUNE
PGOVLO
PAO
POLITICS
PHUMBA
PSEPC
PTBS
PCUL
PROP
PNAT
PNR
POLINT
PGOVE
PROG
PHALANAGE
PARTY
PDEM
PECON
PROV
PHUMPREL
PGOC
PY
PCI
PLN
PDOV
PREO
PGIV
PHUH
PAS
PU
POGOV
PF
PINL
POV
PAHO
PRL
PG
PRAM
POLITICAL
PARTIES
POLICY
PGOVSMIGKCRMKWMNPHUMCVISKFRDCA
PGGV
PHUS
PSA
PHUMPGOV
PEL
PSI
PAIGH
POSTS
PBT
PTERE
RS
RU
RW
RM
RO
RP
REGION
RSP
RF
RICE
RCMP
RFE
RIGHTS
RIGHTSPOLMIL
ROBERT
RUPREL
RELATIONS
ROOD
REACTION
RSO
REPORT
SENV
SNAR
SCUL
SR
SC
SOCI
SMIG
SI
SP
SU
SO
SW
SY
SA
SZ
SAN
SF
SN
STEINBERG
SG
ST
SIPDIS
SNARIZ
SNARN
SSA
SK
SPCVIS
SOFA
SAARC
SL
SEVN
SARS
SIPRS
SHUM
SANC
SWE
SHI
SYR
SNARCS
SPCE
SYRIA
SEN
SH
SCRS
SENVKGHG
TRGY
TSPL
TPHY
TSPA
TBIO
TI
TW
THPY
TX
TU
TS
TZ
TC
TH
TT
TIP
TO
TERRORISM
TRSY
TINT
TN
TURKEY
TBID
TL
TV
TNGD
TD
TF
TP
TFIN
TAGS
TK
TR
UNSC
UK
UNGA
UN
US
UNHRC
UG
UP
UNMIK
UNHCR
UE
USTR
UNVIE
UAE
UZ
UY
UNO
UNESCO
USEU
USOAS
UV
UNODC
UNCHS
UNFICYP
UNEP
UNIDROIT
UNDESCO
UNDP
UNPUOS
UNC
UNAUS
USUN
UNCHC
UNCHR
UNCND
UNICEF
UNCSD
UNDC
USNC
USPS
USAID
Browse by classification
Community resources
courage is contagious
Viewing cable 07TORONTO430, Unraveling Canada's Asset-Backed Commercial Credit Crunch
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07TORONTO430.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
07TORONTO430 | 2007-10-25 18:44 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Toronto |
VZCZCXRO9544
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHON #0430/01 2981844
ZNR UUUUU ZZH
P 251844Z OCT 07
FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC PRIORITY 2231
INFO RUCNCAN/ALCAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 03 TORONTO 000430
SIPDIS
SIPDIS
SENSITIVE
DEPT PASS USTR FOR MELLE, MENDENHALL, SULLIVAN
TREASURY FOR INTERNATIONAL AFFAIRS (FAIBISHENKO)
COMMERCE FOR 4320/ITA/MAC/WH/ONIA (WORD)
E.O. 12958: N/A
TAGS: EFIN EINV ETRD PGOV CA
SUBJECT: Unraveling Canada's Asset-Backed Commercial Credit Crunch
REF: Toronto 422
Sensitive But Unclassified -- protect accordingly.
¶1. (SBU) SUMMARY: By agreement among the players, the Canadian
non-bank asset-backed commercial paper (ABCP) market, which was
valued at C$40 billion in August, is frozen until December 14.
Canada's market for ABCP sold by non-bank dealers ground to a halt
in mid-August after Toronto-based Coventree Inc., and other ABCP
sponsors, failed to roll over their maturing ABCP debt because of
fears of exposure to bad credit in the U.S. sub-prime mortgage
market. ABCP holders have been left carrying billions of dollars of
commercial paper they cannot redeem. While a team of investors,
bankers and lawyers is working (with the approval of regulators and
the central bank) to thaw the non-bank ABCP market through
restructuring, market watchers fear the trouble could spill-over
into the C$80 billion Canadian bank-sponsored ABCP market (C$1 =
US$1.03). Further analysis of the ABCP market crisis may prompt
revisions to Canadian banking regulations to provide greater
protection for consumers. END SUMMARY.
----------
Background
----------
¶2. (SBU) Between 2000 and August 2007 the Canadian ABCP market grew
faster than in other countries, doubling in size to C$120 billion.
Even before problems surfaced in August, the Canadian ABCP market
was disproportionately larger in the Canadian financial system than
the U.S. ABCP market in the U.S. system. Commercial paper is
short-term debt issued by banks or corporations. Asset-backed
commercial paper is debt in the form of mortgages, car loans, or
credit card receivables which has been repackaged and sold to
investors by a bank or another financial company.
¶3. (SBU) The commercial paper market ran into trouble around the
world when the U.S. sub-prime mortgage market plunged in the summer.
Investors, anxious about the Canadian ABCP's possible exposure to
sub-prime mortgage problems, stopped buying ABCP investment
instruments, leaving ABCP holders (or conduits) unable to make the
required interest payments to their investors. The conduits in turn
went to their banks for funding, but the banks refused to provide
it. The ABCP holders had understood that their maturing notes
carried liquidity guarantees, but certain foreign banks, including
ABN Amro, Barclays, Deutsche Bank, and HSBC, were less accommodating
than expected. In the U.S., financial institutions that had
provided liquidity guarantees did not have as much latitude to
withhold funds because those guarantees were broader than those that
were required in Canada.
¶4. (U) In what is known as the "Montreal Accord," on August 16
Canada's five largest banks -- Royal Bank of Canada,
Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and
Canadian Imperial Bank of Commerce (CIBC), along with the somewhat
smaller National Bank of Canada -- pledged their support to the C$80
billion market for ABCP which they had sponsored (the so-called
"bank sponsored" ABCP). However, this left the smaller, remaining
C$40 billion market for "non-bank" ABCP still dysfunctional (NOTE:
The so-called "non-bank" market includes paper sponsored by
institutions which may be called "banks" but are not among Canada's
Big Five. END NOTE).
-----------------
Immediate Fallout
-----------------
¶5. (SBU) Toronto-based Coventree Inc. was Canada's largest non-bank
issuer of asset-backed commercial paper. The company's woes became
public in August when it could not find new buyers for several
billion dollars-worth of asset-backed loans that came due. Last
month, Coventree announced it was slashing 30% of its workforce
(about 25 jobs), and would close its Denver office in an effort to
cut costs to help weather the disruption of the ABCP market.
Coventree has also scaled down its office space in Toronto. The
workforce reduction, including severance, reportedly will cost the
company about C$1 million. Coventree reportedly holds an estimated
C$16 billion in outstanding debt and could face an after-tax loss of
about C$3.5 million if it is forced to write off its ABCP-conduit
loans. Coventree reportedly administers about C$7 billion worth of
frozen notes.
-------------
Bank Exposure
TORONTO 00000430 002 OF 003
-------------
¶6. (SBU) Canada's big banks appear to be buying up some of the ABCP
that they sponsored. Bank of Montreal (BMO), Canada's fourth
largest bank (market capitalization about C$33.2 billion) reportedly
has been one of the biggest players in Canada's bank-sponsored ABCP
market. Market analysts speculate that BMO may have bought back
billions of dollars worth of bank-sponsored ABCP since the August
market meltdown, as evidenced by BMO's balance sheet increasing by
C$22 billion (or 6%) in August. Approximately C$13 billion of the
increase was in debt securities, where analysts speculate the bank
repurchased some of its own bank-sponsored ABCP. Montreal-based
National Bank's (Canada's sixth largest bank, with a market
capitalization of C$9.6 billion) balance sheet also expanded
significantly in August. At that time, National Bank announced it
was buying back about C$2 billion in non-bank ABCP held in money
market mutual funds by National Bank and Toronto-based Altamira
Investment Services, which is owned by National Bank.
----------------------
Finger-Pointing Ensues
----------------------
¶7. (SBU) According to market analysts, the narrowness of the
Canadian definition of "market disruption" caused the problems in
the Canadian market. The narrow definition enabled liquidity
suppliers, such as banks, to avoid fully backing their ABCP except
in the most extreme circumstances. Foreign financial institutions
like Barclays and Deutsche Bank comprised 90% of the
non-bank-sponsored Canadian ABCP market. These foreign banks
reportedly exploited the opportunity to make large profits at low
risk in the Canadian ABCP market -- earning fees by nominally
guaranteeing liquidity without ever having to formally set aside
assets or capital to actually supply the liquidity.
--------------------------------------------
Investor Committee Sorting out the ABCP Mess
--------------------------------------------
¶8. (SBU) The August 16 Montreal Accord was originally signed by the
major financial players owning, financing, and issuing non-bank
ABCP. These players agreed to a 60-day freeze of activity in the
market so that a solution to convert short-term paper into
longer-term notes could be worked out.
¶9. (U) As part of the August 16 "Montreal Accord," a pan-Canadian
investors committee was formed to restructure the ABCP market. On
October 15 the committee extended a 60-day market standstill to
December 14 in order to complete their market restructuring
proposals. Just before the October 15 extension, negotiators
convinced half a dozen non-bank sponsors and trustees of Canadian
ABCP, including Coventree, to join the Montreal Accord, giving
participating banks short-term protection against sponsors
triggering loans or liquidity agreements that back ABCP.
¶10. (SBU) Under the agreed freeze, key holders of the affected
financial instruments cannot demand access to their capital for at
least 60 days. Original backers of the accord included: ABN AMRO
Bank, Barclays, Quebec's Caisse de dptt et placement du Qubec
(manages public pension plans in Quebec, and is the largest Canadian
investor in non-bank ABCP), Quebec-based Desjardins Group, Deutsche
Bank, HSBC, Ottawa-based PSP Investments (invests and manages
Canadian public sector pension plans), Merrill Lynch, and National
Bank. Third party conduits affected by the Accord include: Apollo
Trust, Apsley Trust, Aria Trust, Aurora Trust, Comet Trust,
Devonshire Trust, Encore Trust, Gemini Trust, Ironstone Trust,
MMAI-I Trust, Newshore Canadian Trust, Opus Trust, Planet Trust,
Rocket Trust, Selkirk Funding Trust, Silverstone Trust, Skeena
Capital Trust, SLATE Trust, Structured Asset Trust, Structured
Investment Trust III, Symphony Trust, and Whitehall Trust.
-----------------------------
One Third-Party Conduit Fixed
-----------------------------
¶11. (SBU) C$2.1 billion Skeena Capital Trust, a conduit sponsored by
Toronto-based Dundee Wealth Management, was the first ABCP conduit
to be "fixed" by the investors committee. The committee promised
October 16 that by the end of October, Skeena holders will receive
their return on capital, plus interest, minus an undisclosed
restructuring cost. As part of the plan, Bank of Nova Scotia and
Dundee Wealth will take newly issued notes, backed by Skeena's
assets. The 21 other conduits remain frozen until December. During
TORONTO 00000430 003 OF 003
the restructuring period, market watchers are worried that hedge
funds and other speculators could take advantage of the complex and
illiquid situation by trying to reap profits from short-selling the
assets underlying the ABCP trusts.
----------------
Risky Investment
----------------
¶12. (SBU) In October, superintendent of Canada's federal Office of
the Superintendent of Financial Institutions (OSFI) Julie Dickson
defended her office, which had been criticized in connection with
the Canadian asset-backed commercial paper (ABCP) credit crisis.
Dickson blamed investors for buying ABCP based on only one credit
rating agency - Toronto-based DBRS Ltd. Elsewhere, including in the
U.S., investors require at least two ratings. Other international
credit rating agencies refused to rate Canadian ABCP because the
Canadian interpretation of "market disruption" (which would formally
require ABCP-backers to provide liquidity) was narrower and only
applied if the ABCP market totally dissolved. Institute for
International Finance (IIF) director Philip Suttle reportedly blamed
Canadian banks and regulators, as well as market participants and
the industry as a whole, for the Canadian ABCP market troubles this
year.
¶13. (SBU) On October 17, DBRS said that 75% of the third-party ABCP
market is backed by complicated financial structures known as
collateralized debt obligations (CDOs), while only about 23% of the
market is backed by "traditional" assets like mortgages and auto
loans. C$1.8 billion (7%) of the CDOs relate to U.S residential
mortgage-backed securities (RMBS) assets, many of which were
downgraded by Moody's earlier this month.
¶14. (SBU) COMMENT: In mid-October, outgoing Bank of Canada Governor
David Dodge, in Washington for World Bank and IMF meetings, told the
IIF that credit market problems should be solved by "natural market
forces" rather than regulatory intervention. He argued that
investors should demand greater rates of return in exchange for
"opaque" products. The result, he said, would be issuers producing
more transparent products, not unlike the ingredients provided on
consumer packaged goods. Incoming Governor Mark Carney, who takes
over from Dodge in February 2008, has identified the credit crunch
affecting the ABCP market as one of his first orders of business.
Further analysis of the ABCP market crisis may prompt revisions to
Canadian banking regulations to provide greater protection for
consumers. END COMMENT.
NAY