Thursday, September 27, 2007

Banks Unable to Roll Over All of Their Own ABCPs

Bloomberg, Sean B. Pasternak, 27 September 2007

Canadian banks haven't been able to roll over all of their asset-backed commercial paper amid the global credit crunch, Bank of Montreal Chief Financial Officer Karen Maidment said.

``We've seen the rollovers haven't been 100 percent, so there has been some support provided to those,'' said Maidment, speaking at an investor conference today. ``That was particularly a problem in August, and it's much improved into September.''

Bank of Montreal spokesman Paul Deegan said in a telephone interview that Maidment was referring to the banking industry as a whole, and not her bank. Canada's fourth-largest lender continues to roll over commercial paper at ``prevailing market prices,'' Deegan said.

The failure of Canada's biggest banks to refinance all their commercial paper coming due shows the gridlock in the short-term debt market in Canada hasn't been limited to non-bank dealers such as Coventree Inc. Canadian banks are paying record interest-rate premiums to get investors to buy their asset- backed commercial paper amid the U.S. subprime crisis.

``It's been a disruptive market, but I think we can foresee it working through,'' Maidment said at a conference in Mont-Tremblant, Quebec sponsored by CIBC World Markets.

Canadian Imperial Bank of Commerce Chief Executive Officer Gerry McCaughey said the commercial paper market is ``better'' and has ``a feel of equilibrium right now.''

Canadian lenders such as Bank of Montreal have committed to provide so-called ``back-stop'' liquidity to finance their asset-backed commercial paper if investors refuse to roll over the debt, which have maturities of up to 364 days. The Toronto- based bank had C$42.7 billion ($42.7 billion) set aside for this purpose at the end of 2006, more than any other Canadian bank, according to CIBC World Markets estimates.

The bank-sponsored market for asset-backed paper contrasts with the debt sold by non-bank dealers such as Coventree. That market seized up last month after foreign banks such as Barclays Plc declined to provide emergency funding. A group of investors and banks said today it needs more time to convert some of that commercial paper into notes maturing in five to 10 years.