Wednesday, January 9, 2008

The Optics Of Answers: Where are you going for your advice?

By: Ross Hendin, Hendin Consultants

In one of my first blog entries for Clarity, I pointed to the Canaccord / Scotia lawsuit, and said that as all the parties in this mess start to draw their lines in the sand, so too should they remember that PR - now more than ever - will play a critical role. Litigation communication is critical because without presenting your position and case properly, and without thinking through how your lawsuit will look, you risk your reputation and credibility.

I’ve had some positive feedback about this point, as many people want to seek the compensation they feel they deserve, but they want to do it in a way where they are positioned as “the good guys”. I have also had feedback from people who feel that while litigation PR is all very nice and good, it doesn’t solve the problem that the dealers who sold the notes (i.e. Canaccord and other banks) are the experts that the noteholders are sending their questions to. The noteholders, en masse, believe that the dealers are the right people to answer their technical questions and as such are working very hard to be in touch with them on their issues.

This is the ABCP equivalent of buying a car at a dealership, and going back to your salesperson when there is a problem with it. What would they tell you? “Nobody cares more about you than I do, and nobody wants to see you happier. The car isn’t made here; I know everything about the product but can’t tell you what’s wrong with it, and I can’t fix it. If you want it fixed you can take it to a place that specializes in fixing these things. Have a nice day and think of me when you need another car.”

Noteholders should remember that while the dealers are friends right now, things may change if the restructure doesn’t go according to plan. They may be the first people to get sued by the noteholders, who were told that the investments were short term and safe. The dealers may in turn sue the banks because they didn’t do their own diligence on the notes, and in so doing, will risk looking like they didn’t do homework before selling a product to their clients. Let’s be clear here, unless a dealer is giving the noteholders their money back, like National bank, they are in a difficult situation optically. They need to stay the friends of the noteholders now, knowing full well there could be litigation down the road, and knowing that while they have a strong knowledge of the notes, they aren’t the experts who built and stand behind the product.

Noteholders walked into a dealership, and bought a car they thought was a great bargain. The noteholders, and the dealers selling the product, didn’t look under the hood properly to check the mechanics. As a result, the salespeople are getting calls from customers with questions about engines, drivetrains and spark-plugs when their working knowledge really extends to horsepower, options, colors and lease rates.

Even though the dealers look like the logical place to seek advice now, they may not be. To me, it looks like Canaccord and other have showed the market that dealers may not be experts and may not know the product as well as the analysts that structured them.

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