Tuesday, January 29, 2008

ABCP and the National Bank: Could the Chairman have been a champion?

By Ross Hendin, Hendin Consultants

Last week we learned through this Globe & Mail article that the National Bank of Canada had $7.8 million worth of ABCP bought back from 48 company insiders, including Louis Vachon, bank CEO - who held $2.54 million of it personally.

The article then made a of point of stating that while National Bank were the first to step up, and buy back the frozen paper from their clients (in what I thought was a terrific PR move), the buyback was limited to individual retail clients and corporate clients with total holdings of $2 million or less who are not considered accredited investors under regulations.

It mentions that "The board said the three executives who had their ABCP repurchased put the money into a trust account so they could work on the issue “without any appearance of conflict of interest.”" - I assume by saying appearance, it means they understand there is a conflict, but they just don't want it to look that way.

I'm following the ABCP story fairly closely, and I had no idea about these little points. It's one thing to have a CEO crusade for the little guy, and yet another when the public and shareholders discover that the CEO is benefiting from "doing the right thing". Now, should Mr. Vachon's holding ABCP personally count as a major negative? Based on this one article, I'd say so. Could this perception have been avoided? Absolutely.

The CEO and leader of the bank was as convinced about the investment's quality as any client would have been, and his demanding a resolution for everyone that the bank has dealt with was a good move on it's own. His reaction is a tricky balance, because some may say that showing the CEO held paper early would have eroded confidence in him as a finance expert, but I disagree totally. If the point of the meltdown is that nobody ever expected the paper to freeze, and the paper had the endorsement of the bank, I'd be more disappointed if the execs in the company steered clear of it than if they held it. Their holding it shows that they believed in the product just as their clients did, and as a spectator, says that they were at least acting in good faith as they sold the notes.

Let's take a moment and now reflect on the Scotiabank / Canaccord lawsuit, which alleges that the Scoita Capital execs were selling their notes even while telling their clients that the notes were safe. An act that, in retrospect, is much more disappointing than finding out that the CEO of National Bank bailed himself and many others out of a tough situation.

I'm more than willing to concede that given all we've learned from the Globe & Mail article, the National Bank of Canada could have been more forthright in their intentions and positions. From a Public Relations perspective, it would have been much more powerful to have their CEO expose his holdings in the paper, saying that he, like their clients, believed that this was safe and that he's going to do whatever he can to protect and save those who - like him - were caught in the fire. This may have undermined him as a financial clairvoyant, but would have made him human and would have shown the country that the bank stood behind what it sold. It would have also shown that the National Bank team “ were people too.”

The lessons to learn here:
1) The bank could have been more forthright, and could have won public support in being forthright.
2) The lack of transparency and the conflict of interest in how they dealt with the buy-back should enrage shareholders, but again, had the PR been done well, it would have boosted positive publicity and perhaps generated more revenue down the road.
3) Contrasting this situation to the Scotia one, it's easy to see where I'll be moving my investment portfolio - from the bank that sells me product they are dumping to a bank that buys the same products I do and then save themselves while saving their clients!

Ross Hendin is CEO of Hendin Consultants, and is a Senior Advisor to the Canadian office of a leading multi-national PR firm. With strategic communication experience in more than 20 countries around the world, Ross specializes in litigation, financial and political strategic communication. He has worked in the ABCP niche since 2006. Hendin Consultants is in Toronto and London, UK, and is on the web at http://www.rsmediacorp.com/. Email Ross at mailto:rhendin@rsmediacorp.com.

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