Several of Canada’s largest financial institutions will dole out $138.8 million for their role in the asset-backed commercial paper meltdown in settlements approved Monday.
National Bank (TSX:NA) will pay the majority with its share totalling $75 million in penalties and investigation costs.
Several other major players, including CIBC (TSX:CM), HSBC and Laurentian Bank (TSX:LB) will make up the rest.
“National Bank Financial Group’s actions reflect its commitment to work constructively with regulatory authorities and its clients,” the Quebec-based bank said in a statement.
The Canadian ABCP market ground to a halt in August 2007 amid fears the assets behind the notes included U.S. subprime mortgages and other high-risk loans.
The Ontario Securities Commission, Quebec’s Autorite des marches financiers and the Investment Industry Regulatory Organization of Canada reviewed and approved seven different settlements over improper handling of the investments at some of Canada’s biggest financial institutions.
The hearings were held in camera, meaning no members of the public were able to attend.
In the U.S., several recent high-profile cases involving securities violations have subjected those accused to intense media and public scrutiny.
Still, Alfred Apps, an insolvency lawyer with Fasken Martineau DuMoulin, said the settlements Monday represent a successful conclusion for all parties involved and will be beneficial for consumers and for the markets.
“It’s a good day for financial regulation in Canada,” he said. “This is not a nominal amount and as a consequence of that, the industry is going to be changing its diligence and compliance practices to respond to what is happening in this case.”
He said the case is a wake-up call for the banks, which have already contributed money for the restructuring of the complex financial instruments.
“Everybody, including the regulators have learned a lesson from this experience, and to suggest that what has occurred is going to mean business as usual for everybody is just dead wrong.”
CIBC World Markets (TSX:CM) will pay a fine of $21.7 million, plus $300,000 for the cost of the investigation, while HSBC Bank Canada will pay $5.925 million, plus another $75,000 in investigation costs.
CIBC and HSBC, which sold the papers to institutional clients, also admitted to “conduct contrary to the public interest by failing to adequately respond to emerging issues in the third-party ABCP market insofar as it continued to sell third-party ABCP...”
Scotia Capital Inc. (TSX:BNS), which agreed to pay nearly $29.3 million to cover in fines and its share of the investigation, made a similar admission to IIROC, said Alex Popovic, the body’s vice-president of enforcement.
The dollar amounts were based on the culpability of each institution, how many ABCP they sold and the specific allegations against them.
Those institutions, as well as National Bank and Laurentian allegedly did not disclose an email outlining the subprime exposure of each ABCP to their mainly institutional clients.
Laurentian Bank (TSX:LB) agreed to pay $3.2 million for its role in the debacle.
Meanwhile, Vancouver-based Canaccord Financial Ltd. (TSX:CCI) will pay a total of $3.1 million and Credential Securities Inc. will pay $200,000.
They had been accused of failing to take adequate steps to ensure that retail clients understood the complexities of the third party ABCP.
A restructuring of Canadian ABCP was completed earlier this year, and most of the individual investors have received their principal back, but pensions and businesses were given notes that will mature over the coming years, although the notes can also be sold prior to maturity.
ABCPs are short-term investments with maturities of 30 to 180 days. They are backed by a pool of underlying assets and offer a slightly better yield than those offered on short-term government debt.
Aside from individuals, investors who lost money in the risky investments include Silver Standard Resources Inc. (TSX:SSO) Jean Coutu (TSX:PJC), Quebec pension fund manager Caisse de depot et placement du Quebec and the City of Hamilton.
Michael Miles, 60, is a self-employed investor in Victoria, B.C., who put his retirement plans on hold after his account was frozen when the ABCP market collapsed. He said he did not even know he owned ABCP until after he could no longer withdraw money.
His account was frozen for about 18 months before he was able to negotiate a settlement to reimburse his losses in exchange for agreeing to support the restructuring.
“If you’re self employed, which my wife and I are, and you have no assurity that your retirement savings will ever be returned to you, it’s a huge emotional hit.”
He said Monday he was not happy with the financial settlements because no one was held personally responsible for the misdealings, criminal charges were not pursued, and no one had their right to practice withdrawn.
“We want to know who the heck is personally responsible and those people need to be investigated for criminal fraud.”