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.

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.

Scotia Capital / Canaccord ABCP Lawsuit - Article and Comment

By: Ross Hendin, Hendin Consultants

Tara Perkins and Jacquie McNish wrote an article in today's Globe and Mail: Scotia Capital named in ABCP lawsuits

I think it's an article worth reading because it goes into a lot of the details that will become important as litigation continues to unfold in the case and after the Accord is voted on.
For readers of the Globe, I have already made a comment about the article.

But for the readers of the Clarity blog, I want point out a few other things:

1) The first and last paragraphs of this article are really the heart of the issue here. Scotia Capital may have known the market was heading for turmoil. They may have not just ignored this, but may have gone a step further by reducing the amount of paper they held while promoting the paper to clients. Now, as I often tell clients, there are two places that corporate legal cases are fought: the court of law and the court of public opinion. Even if Scotia Capital wins in court, they are going to have a challenge winning this one in the court of public opinion. This is a legal fight that should be in the public eye, and it seems very likely to me from a PR strategy perspective that Canaccord probably launched the suit in advance of the Montreal Accord deadline for the very purpose of getting advance media attention and trying to get the message out there that at least one group may have known about the ABCP meltdown before hand and did nothing about it. IF this is what they are trying to do, I commend them on the strategy and just hope now that they can get the message out more effectively. Scotia Capital also has a chance to use the spotlight to its advantage if it can figure out how to harness this action in its best interests. I think it can be done.

2) Branding, and the way you present yourself as a company, is critical at all times. Before anyone launches a litigation or an accusation, PLEASE for the love of your shareholders consider if your arguments or assertions in your legal filings (that go on the public recorded and may be exposed) are in line with what you hold yourself out to be. For example, click here to see the Canaccord Capital website. Beside the logo are the words "Independent Thinking". Their case is totally premised on the fact that they were told what to do and what to think by Scotia, they DIDN'T think independently, and they are suing because of it. More and more over the last number of years, companies have been realizing that the market and their clients are becoming more observant. Many of the most forward-thinking companies now make it a rule to hire a PR person to work with their lawyers (litigation communication) to translate between English and Legalese, and to make sure mistakes like this one just don't happen. There is a very famous PR case study called the 'McLibel' trial that comes to mind: McDonald's actually sued two people from Greenpeace. Even if they won the case, it doesn't matter - it was a PR disaster.

Ross Hendin is CEO of Hendin Consultants, and is a Senior Advisor to 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 advised companies in the ABCP niche since 2006. Hendin Consultants has offices in Toronto and London, UK.

Hendin Consultants is on the web at http://www.hendinconsultants.com/.
Email Ross at ross@hendinconsultants.com.