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Investors still jittery one year after ABCP collapse

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David Friend The Canadian Press TORONTO

A year has passed since the collapse of Canada's $33-billion asset-backed commercial paper market and small investors are still waiting for the Ontario Court of Appeal to decide what happens to a restructuring plan that has served as the only hope of investors recovering some of their money.

It wasn't supposed to happen like this, with hundreds of Canadians anxiously hoping their retirement savings wouldn't be whittled down to a mere fraction of their worth -- then again, the market wasn't supposed to crumble last summer either.

Signs of the ABCP troubles began on Aug. 14, 2007, when Coventree Inc. (TSX: COF), the largest nonbank arranger of ABCP in Canada, announced that a "market disruption'' tied to the default of U.S. mortgages resulted in the firm being unable to find investors interested in rolling over the investments as they matured.

The trading of Canadian commercial paper was quickly frozen, and over time the ABCP deterioration spread to world markets.

In Canada, a committee was formed to clean up the problems, headed by Bay Street lawyer Purdy Crawford.

All of the unpredictability has left some Canadians that invested in ABCP, many of them retired, reconsidering their savings, their futures and even looking at selling their homes to gain some financial certainty.

But some say that they've chipped away at their short-term savings over the past year and are nearing dire straits.

"I think we all knew the restructuring plan was going to take a lot of time to put together,'' said Daryl Ching, an independent consultant who spent months working alongside corporations holding ABCP, and last summer dealing with securities at Coventree.

"What's shocking to me is how long the court of appeals is taking.''

Two-and-a-half months ago the restructuring plan seemed to be close to a finale.

An Ontario Superior Court judge had accepted an amendment to the plan that would allow certain noteholders to pursue claims of fraud against brokerages and dealers that sold them ABCP, while protecting banks and rating agencies from litigation.

But the decision also left open a 21-day window for individual and corporate investors to file appeals on the case, and the three judges assigned to the process have been working on a decision since late June.

The date for a final decision is anybody's guess because of scheduling and summer holidays.

"I thought there was a sense of urgency,'' Ching said.

"I've heard people give me stories like, 'The court should not be rushed into making decisions like this.' But we do have 2,000 retail investors who have their life savings in limbo.''

"I think this is a unique enough situation that the decision should be expedited.''

For investors like Yulan Wong, who lives in Vancouver, a resolution can't come soon enough.

The 60-year-old retired real estate agent says she was forced to return to work this summer after realizing she might not have enough money to pay for her bills and the university education of her niece, who is under her care.

"I'm hoping and I'm hoping, and getting really scared they might not pay back the money,'' she said.

"I was looking after money for my niece, because she lost both parents, and I'm feeling very guilty.''

All together Wong estimates that she has $300,000 frozen in the ABCP debacle, and she said that if the assets remain frozen past the current Aug. 31 deadline she might have to consider other major changes to her life.

"I really don't know what I'll do . . . Going back to real estate is difficult at this stage because of the (housing) market, and I've given up all my leads thinking I was going to retire this year,'' she said.

"I could sell my house but I still have two kids who are living here.''

Stories like Wong's dilemma have sprouted up across the country but were virtually unknown when the troubles first emerged.

Ching remembers the uncertainty that surrounded his final weeks at Coventree, before he became an independent consultant.

"I didn't even know there was a single retail investor at Coventree,'' he said, recalling the order of events late last summer.

"For me, it was when a retail investor went on my ABCP blog and made a comment saying 'I'm a Canaccord client and I've got ABCP.' And that was probably (months later) in December.''

"I'm sure there's some that knew about it. Certainly we didn't,'' he added.

A list of ABCP holders has never been officially compiled because of confidentiality laws, but it quickly became apparent that the known investors were just the tip of the iceberg when a Vancouver businessperson launched a suit against Canaccord for selling him the assets, and more lawsuits followed.

Crawford said it wasn't until the ABCP restructuring committee embarked on a three-day whirlwind tour to talk to retail investors in March that he understood just how many average Canadians were affected by the frozen assets.

"We started in Toronto, and it wasn't so obvious there,'' he remembers, saying that the numbers grew when they moved on to Montreal and Edmonton. In Vancouver, "the place was packed. It was good for those investors to have a face to talk to. I saw the anger.''