ABCP Crisis Update

Written by  //  February 16, 2012  //  Canada, Economy  //  1 Comment

Investors burned by ABCP set for settlement
(Globe & Mail) Investors who were caught up in the asset-backed commercial paper freeze in 2007 may be in line for a big cheque, as regulators are hoping to distribute as much as $60-million they collected from banks who sold the money market paper.

The Investment Industry Regulatory Organization of Canada and the Ontario Securities Commission will apply to the judge who oversaw the restructuring of the ABCP for permission to distribute the money, which would go to individual and institutional investors who were affected. An announcement is expected as early as Thursday morning, said two people familiar with the plan.

The cheques from regulators will help investors erase the memory of the 17 months of not knowing whether all their savings would be lost.

The cash comes from settlements reached in late 2009 with a group of banks that sold the paper. In addition to the OSC and IIROC, Quebec’s Autorite des marches financiers collected fines.


13 September
The ABCP crisis and its (somewhat) happy ending
It was the restructuring nobody liked. But four years after the asset-backed commercial paper crisis, the deal hammered out to defuse the $30-billion bomb in Canada’s financial sector is working out just fine.

In the summer of 2007, a debt crisis not unlike the one now spreading in Europe left Canadian investors, who were holding $30-billion of notes they thought were safe, suddenly facing the prospect of huge losses.

The market for asset-backed commercial paper froze in mid-August, 2007. Panic in European credit markets and concern about exposure to subprime mortgages caused investors to stop buying ABCP in what turned out to be one of the first manifestations of the global credit crisis. That left existing ABCP holders with no way to get their money back.

That left the holders of the $30-billion in limbo. Their money wasn’t gone – yet – it was just locked up. The holders faced a strong possibility, however, that unless somebody found a solution, the complicated derivatives trades behind the paper would collapse and their money would indeed be gone. Mining companies, individual investors and huge financial institutions were all in the same boat, though that didn’t stop them from squabbling over how to fix the leak.

It took more than a year, and last-minute government help, to put in place a plan to get investors their money back. Like a lot of the emergency restructurings resulting from the credit crisis, from General Motors Corp. to the TARP, the ABCP fix was messier than a 14-year-old’s room. Some would say it smelled just as bad.
There were, of course, flaws. [There were flaws in most every one of the fixes of the 2007-08 leg of the financial crisis.] Critics point to the fact that one group of institutions may have gotten off lightly – the banks (mostly foreign) that sold derivatives to the companies that issued the ABCP, and those that didn’t honour promises to provide emergency loans when the emergency came.

General Motors Corp. is still selling cars, the U.S. banking sector is mostly back on its feet and investors in ABCP are getting their money back, if a whole lot more slowly than they anticipated when they bought what was then pitched as short-term paper.


27 July
ABCP on the comeback trail
Two years after being demonized for its association with the credit crisis, asset-backed commercial paper has re-emerged as a credible investment alternative.
The acronym “ABCP” rarely shows up in the news media these days, but in 2008 its Canadian market nearly imploded and companies could not issue any new paper. Today, Canada’s securitization market is stable and some securities are trading at levels better than pre-crisis rates.
Because investors like the product, the problems rests with supply. Issuers are happy to securitize their loans but banks are timid to back the deals. After the ABCP market blew up, there was a fight between banks about who would support their paper. Now, new rules make them all liable for stepping in during a market disruption.
19 May
Canaccord turns the page on ABCP
Canaccord Financial Inc. has turned the page — or more appropriately, closed the book — on its involvement in the asset-backed commercial paper saga.
The firm said during its most recent quarter, “Canaccord disposed of substantially all of the company’s holdings of Asset Backed Commercial Paper.”

One Comment on "ABCP Crisis Update"

  1. JE September 14, 2011 at 11:21 am ·

    Even if every cent is paid back, it will not change a salient fact…it is still a default of grand proportions, restructured as it may be.

Comments are now closed for this article.