National Bank refutes allegations made by a group of investors about ABCP
National Bank of Canada (NA:TSX) refutes the allegations made in motions presented in the Ontario Superior Court of Justice by a group of corporate clients that invested in non-bank asset-backed commercial paper (ABCP).
The Bank believes that the difficulties in the ABCP market stem from a global liquidity crisis that erupted last summer and that it is going well beyond its legal obligations to protect its clients during this crisis.
The Bank is acting entirely in good faith on this matter since, like many other financial institutions, it had itself acquired ABCP and is therefore affected like its clients.
The Bank reiterated that the ABCP had been given the highest rating from the largest Canadian rating agency and that the liquidity of the investments was to be guaranteed by large international banks. The Bank itself had recourse available to it in the circumstances. It pointed out, however, that the Crawford Committee was created specifically to avoid the flood of actions that could result in long legal disputes and a disorderly liquidation of investments. The Crawford Committee provides instead for an orderly restructuring of the notes, ensuring maximum protection of the amounts invested, with the cooperation and in the interest of all stakeholders.
Since last August, in addition to playing an active role on the Pan-Canadian Investors Committee for Third Party Structured Asset-Backed Commercial Paper (Crawford Committee) in order to come to an orderly settlement of this situation and preserve the value of investments, the Bank rapidly took specific actions to help its clients deal with the ABCP market freeze.
The Bank therefore put forward, for the benefit of about one hundred corporate and commercial clients holding ABCP out of a total of more than 140,000 clients, a support program with the following main elements:
The Bank made $670 million in credit facilities available to corporate and commercial clients in order to give them access to the value of their investments in ABCP. As at February 18, 2008, the targeted companies had used $119 million of these facilities, which are offered under standard bank terms.
In the event that the proposal by the Crawford Committee aimed at restructuring the ABCP market is adopted, these credit facilities will be made available to targeted companies for a period of two years and may be extended every year at the discretion of the Bank. The credit facilities will cover up to 75% of the investment value. The cost of these credit facilities will for the most part be offset by interest received on the long-term notes that will result from the restructuring of the ABCP market. These credit facilities will still be issued according to standard bank terms with the Bank preserving all recourse in the event of default.
For approximately 20% of ABCP having a higher level of risk, according to an evaluation made by the Crawford Committee, the Bank will also offer credit facilities for a renewable, two-year period that would cover up to 75% of the value of the notes. However, in this case, the Bank concedes all recourse other than the notes given as collateral. In addition, clients will benefit from any eventual increase in the value of the notes above 75%. The companies targeted must maintain their business relations with the Bank during the period of the credit facility. Many corporate clients of the Bank appreciate the offers made by the Bank in the circumstances.
Shortly after the ABCP market freeze last August, the Bank took the initiative to protect its individual clients from new risks associated with these securities by acquiring all non-bank ABCP that they held. This measure was also offered to all companies holding $2 million or less of ABCP and that were not considered accredited investors under securities law. This initiative represented an investment of $2.1 billion by the Bank.
Also, in order to support the efforts of the restructuring plan proposed by the Crawford Committee, the Bank has already announced its commitment to contribute approximately $815 million to liquidity facilities provided by financial institutions and Canadian investors. These liquidity facilities represent an integral part of the overall ABCP market restructuring plan and aim to reduce the risk that the instruments will not be able to deal with margin calls if circumstances warrant it.
The Bank believes that together these measures reflect its determination to promote an orderly restructuring of the ABCP market and to support its corporate clients that invested in this financial instrument, even if these investors are considered accredited investors under securities law. These measures were prepared in an effort to reach an optimal balance between the interests of clients, shareholders and the Bank itself.
About National Bank of Canada
National Bank of Canada is an integrated group which provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. The National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. National Bank has more than $120 billion in assets and, together with its subsidiaries, employs 16,856 people. The Bank’s securities are listed on the Toronto Stock Exchange (NA:TSX). For more information, visit the Bank’s website atwww.nbc.ca.
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National Bank of Canada