Monday, February 11, 2008

Canaccord Writes Down ABCP, But What About The NoteHolder Clients?

By: Ross Hendin, Hendin Consultants

Since the Canaccord / Scotia lawsuit emerged a few months ago, I have been keeping an eye on it. (I encourage all readers of the blog to revisit this entry, and look at the comments to it – they’re worth reading). With the exception of the potential hailstorm of lawsuits against rating agencies, and of course what happens with the Yukon government (who have used over 30% of their budget surplus to buy ABCP in violation of their investment rules), some of the Canaccord suits may be the only litigation to survive the Crawford Committee legal ceasefire that is a part of the restructure (To the best of my knowledge, the Committee's ceasefire will not include negligence on the part of resellers, but I stand to be corrected). However, unlike the rating agencies, the Canaccord suits could be very easily untangled if Canaccord wished to make things easier for their clients.

From a PR perspective, Canaccord seems to be handling their clients as if they were financial terrorists - they will not negotiate with them, perhaps under fear that once they do, every client that they have ever treated improperly will come after them looking for compensation and a settlement. A clear message that Canaccord doesn't settle out of court means that people will think twice about taking them on, because taking them on means a number of years and probably more money on legal fees than the suit is worth.

In the Globe & Mail article, Canaccord Clipped By ABCP Writedown, Roma Luciw and Boyd Erman quote Canaccord COO Mark Maybank as saying: "Some of the [client complaints] have more validity than others and they will get addressed in the normal course of business."

It's not often that somebody who's in a client-centered business comes out and discredits their clients by saying that their suing the company in one of the most high-profile finance debacles in Canadian history has no validity. Considering Canaccord is suing Scotia Capital for a portion of damages because Scotia recommended the ABCP and Canaccord didn't do its own diligence, it's hypocritical of Canaccord to turn around and dismiss the litigation as invalid.

It's also not often to hear a company exec say that they will deal with customer complaints in the normal order of business. What is the normal order of business? To some of us, it's to make sure the customer is always right and happy. For others, the normal course of business is years of litigation.

The article also says Canaccord has gone public with news that there are now 24 clients who have "filed complaints" about ABCP holdings, which is up from 13 in the last quarter.

While we are obviously past the point where Canaccord will not do what National Bank did, and buy back the ABCP from their clients, litigation is still not the only way to untangle this for the 24 clients now seeking some assistance. This is a potential disaster for Canaccord, in terms of optics. They think that they are sending a message not to sue them, but in reality the message I am seeing is that I shouldn't do business with Canaccord in the first place.

1 comment:

windyfield said...

Canaccord has said in no uncertain terms as recently as February 14 2008 that they will NOT be helping out any of the 1400 clients they sold this crap to. They expect to be fully shielded by the waiver. They have said that folks who refuse to sign will not get the new paper and will remain with worthless un-tradeable coventree et al paper. One can only presume that the expected haircut is large (> 50%) or these guys would take it back. However they feel the risk of loosing 1400 clients is better than taking $269 MM of stinky paper back. The only silver lining is that Canaccord management holds 29% of CCI stock and including all employees its 50%+. As the stock price continues to dive(down 50% in 9 months) while clients run for the exits they may find it harder to pay the costs to keep the yachts moored at Fishermans Cove...