Monday, December 17, 2007

TD Bank Rejects Taking-on Non-Bank ABCP Risks

Financial Post, Duncan Mavin, 17 December 2007

Toronto-Dominion Bank chief executive officer Ed Clark slammed claims his bank should bail out Canada's seized-up asset-backed commercial paper market since it could mean taking on risks the bank has been careful to avoid.

"We are being drawn into an issue that we haven't been involved in and [one where] our relationship is quite peripheral," Mr. Clark said in an interview Monday evening.

"Those that are involved, and thought they were going to make a profit that then goes sour, should step up to the plate proportionate to the [degree] which they are involved," Mr. Clark said.

The bank will be willing to consider measures that are in the best interests of TD shareholders and could provide liquidity to the market if it does not involve taking on risk, he said.

"If people need liquidity we are prepared to look at it, but we are not prepared to look at liquidity if it means we take on risk," Mr. Clark said. The TD chief is speaking out after a committee working to free up Canada's troubled $33-billion non-bank ABCP market missed its deadline for releasing a proposal on its restructuring plan for the second time last Friday.

Purdy Crawford, who heads up the committee, as well as Bank of Canada governor David Dodge have asked the big banks to provide billions of dollars in support of the illiquid market that collapsed in August.

Although discussions about how to resolve the crisis have been going on since the summer, TD's Mr. Clark said the first time he was asked to help out was just last week.

"We haven't been involved. We stayed away from this file and only last week we were asked, 'If we get toward a solution will you get involved?'"

The TD chief railed that he has not been privy to "a whole set of bilateral discussions going on here."

BMO Capital Markets bank analyst Ian de Verteuil said it is "a positive" for ABCP holders but not necessarily for bank shareholders that the big five banks have been asked to help out.

"Given their limited involvement in this situation, big bank CEOs' reluctance to become involved is understandable," Mr. Verteuil said.

TD is the only one of Canada's big six banks that has not announced a big credit-market writedown.

The bank's largest rivals have taken about $2-billion in credit crunch charges so far, including writedowns related to the ABCP market.

"I think it's understandable that people that benefited financially from these instruments in the first place are going to find themselves required to help dig this situation out," Mr. Clark said.

"I happen to be at a bank that didn't sell any of this to my clients and my customers and therefore didn't earn any money from them and therefore take an alternative view. "

The non-bank ABCP market has been frozen since August when issuers were unable to roll over maturing notes because of fears they were linked to the U.S. subprime mortgage meltdown.

When emergency liquidity providers declined to step in, a group led by the Caisse de dépôt et placement du Québec and other holders of the paper launched the so-called Montreal Proposal, under which the ABCP would be converted into longer-term notes.

Mr. Crawford's committee missed its deadline for releasing its restructuring plan on December 14 and set a new target date for the plans of January 31, 2008. The committee also aims to close the restructuring by March 14, 2008.

However, the latest delay has stretched committee's credibility.

"Another missed deadline increases odds of problems developing," said BMO Capital Markets' Mr. de Verteuil.

"Remember that some holders of the ABCP have not signed onto the Montreal Accord, and could launch lawsuits that would complicate progress.
The Globe and Mail, Tara Perkins, 17 December 2007

Toronto-Dominion Bank said Monday that it's willing to support the third-party asset-backed commercial paper market, but it's reluctant to take on risk by doing so.

"TD is willing to consider measures that support attempts to resolve liquidity issues in the financial markets," chief executive officer Ed Clark said. "However, our position has been that As Friday's self-imposed deadline to complete a restructuring proposal for the frozen $33-billion non-bank ABCP market loomed, players were still at a loss to agree on who would commit to providing emergency loans if the assets backing the restructured notes fall into trouble in the future.

A request was made that Canada's big five banks ante up as much as $1-billion apiece, prompting a confrontation Thursday night. The banks argued that they had little to do with the crisis, and so it would be tough to explain to their investors why they wound up on the hook for the money. Sources said TD was leading the negotiations for the banks.

In the wee hours Saturday morning, the committee that's working to restructure this market — led by lawyer Purdy Crawford — said it was extending its deadline until the end of January. Over the weekend, big investors such as the Caisse de dépôt et placement du Québec and foreign banks such as Deutsche Bank AG agreed to take on more risk, and in return the Canadian banks were asked only to put up about $500-million apiece, sources said.

A spokeswoman for Royal Bank of Canada said Monday that, "Although RBC is not a significant participant in the non-bank sponsored market, we will continue to be actively involved in finding a solution that returns our domestic commercial paper market to normalcy and preserves the interests of RBC shareholders."

Mr. Clark has recently been hammering away the message that TD was the only big Canadian bank to avoid making any writedowns related to the credit crunch in the most recent quarter.

At a recent conference with his senior management group, he said the stock market had "recognized we're running a different strategy — that we don't have the risks so many others have."

"We avoided the effects of the recent market turmoil," he said, according to a copy of his remarks that was filed with regulators on Friday. "We made the right decisions and we were rewarded for them."

"How am I feeling? Unbelievably optimistic," he told his managers, according to his remarks. "Just look around the world — there are few banks like TD. We had no writedowns reported in 2007. We protected our customers and clients from faulty asset-backed paper investments."

While that's helping the bank's stock, the market is also reacting to TD's decision to spend $8.5-billion (U.S.) on New Jersey-based Commerce Bancorp. "Even though Commerce is a terrific franchise, the markets don't like U.S. banking today," Mr. Clark told managers. "Our stock price is feeling the effects of that. But we're not worried."

Mr. Clark noted that 10 years ago, during Charles Baillie's first year as the bank's CEO, more than half of TD's earnings came from wholesale, or investment, banking. Now, it derives about one-fifth of its profits from investment banking while 80 per cent comes from basic consumer banking.