Finance Committee on March 3rd, 2009

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

Thank you to our guests here this morning.

Mr. Halde, I want to ask you two or three questions. I also want to apologize for my colleagues across the way who were complaining about the budget, that it was presented in January and it's already March and you haven't put any money out. I want to know the process a little bit. Those Liberal members across the way have been speaking in the House on end about this motion that we're trying to get passed so we can get this budget in place. Speaking of propaganda, that was propaganda.

The issue that I have from a process point of view is if the budget eventually gets passed through the House, what is required for the money to actually flow to BDC?

[Jean-René Halde]

Just so we're clear, the money has started to flow. In November we were given $350 million, of which we got the first $250 million, and we're busy putting that to work as we speak. So that's happening.

[Mike Wallace, Conservative, Burlington, ON]

What about the $5 billion?

[Jean-René Halde]

The $5 billion is the amount that we're going to be working together at putting out collectively, and some of that will be done relatively quickly. For example, as we purchase commercial mortgages so that, in turn, the bank can lend more, that can happen relatively quickly. There are some of them that can be done quite quickly. It's a bit hard to know exactly what date, given the number of us in this program.

[Mike Wallace, Conservative, Burlington, ON]

The other question I had for you is on the Canadian secured credit facility, and the reason I'm asking this is because it's a direct question from a constituent of mine. I know you're still studying exactly what that's going to look like in terms of structure, but my reading of it is that it will only be available to federal or provincially designated financial institutions. Do you expect that money will be available to leasing companies? Do we have any sense of how that secured credit, the $12 billion piece, is going to work?

[Jean-René Halde]

We've agreed between ourselves and Finance Canada that Finance Canada would decide on the eligibility. As in all of our consultations, when the questions come up I turn them over to my esteemed colleague on my right.

[Tiff Macklem]

If a leasing company indicates that it's prepared to be federally regulated and begins the process, then it will be eligible. The process does take a period of time. We realize that credit needs to flow as soon as possible. As long as it begins the process, it will be eligible.

[Mike Wallace, Conservative, Burlington, ON]

My final question is for you. First of all, I want to thank Mr. Carrier for stealing my question. I believe the studies that were presented about a single regulator were presented to this committee during the budget period, so that's not an issue.

In your statement, you say that these are not bailouts. Do you want to define for me what the difference is in what we're doing and why people consider them a bailout? In your view, what is the difference?

[Tiff Macklem]

To be really blunt about it, if we had to take a provision in the budget and it showed up in the deficit, then you'd be using taxpayers' money. It would be an expenditure, as opposed to an investment.

These are investments. In the case of the insured mortgage purchase program, for example, the government is buying high-quality mortgages. These are already insured by the Government of Canada as well as private sector insurance companies with the backing of the Government of Canada. There is no additional risk to taxpayers. The government is not buying toxic assets--there are all sorts of names for them--or legacy assets. These are good assets, good investments. And we're doing it to ensure there is access to funding and liquidity for our financial system so it will continue to lend.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

We'll go to Mr. Pacetti, please.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

Thank you to the witnesses for appearing.

Just quickly, Mr. Halde, it's a nice story. You talk about the Business Development Bank of Canada and all the things you're trying to help. But let's not deny that you are a bank, and it does cost more to do business with your bank. You do run your bank like a bank; there are fees.

I'm talking maybe from a personal point of view. I have a constituent in the textile business who came in. They have been suffering for a number of years, but now things have finally turned around in their area. They're one of the few survivors. They're looking for additional financing. They have some firm orders because their facilities are in close proximity to the U.S. market. Here we have an example of a $100,000 loan where fees of $8,911 are being charged on an amount that was outstanding. It came to about $40,000.

I understand it's in special accounts, but there seems to be a problem. You are pretty well the lender of last resort, but you are treating people like you are a bank. I understand that you have to make money, but there doesn't seem to be a mechanism where people can come to the bank and say they want their case to be reviewed or have a second person look at it.

Am I missing something? If the business sector doesn't have the confidence that they can do business with you on the second round of these additional moneys to be lent through the business credit availability program, how am I going to feel at ease that you will be able to get that money out, not only to the right people, but efficiently and at a reduced cost?

[Jean-René Halde]

Thank you.

Let me try to address your question. First, we do price for risk. Our average client, by Standard and Poor's, might be a B-; our best client would probably be a B+, and some of them would be CCC. We're dealing with a risky clientele, and basically we price for risk. At the end of that process, we're making a very minimal return on equity with that.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Why do you say you're making a minimum? There is risk involved, and I understand that, but there are fees and there is a factor in the premium you're charging.

[Jean-René Halde]

Our loss rate is obviously much higher. Unfortunately, of the 28,000 clients we have, some of them do not make it.

Just to reassure you that we are listening, I have a statistic here. Last year we offered 4,500 capital postponements to entrepreneurs who were struggling because of the economic situation. We provided them with the ability to pay the interest and postpone the repayment of capital in an effort to help them through a tough time.

If any client feels that the decision is improper, we have two systems. One is that he can ask that this be reviewed by someone more senior. If a person feels, for whatever reason, that he has been treated unfairly—and thank God not many people believe that—we do have an ombudsman, to make sure that there is absolute impartiality.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's what I was looking for. Is the ombudsman in the annual report?

[Jean-René Halde]

Yes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay, so you'll be able to provide me with the....

[Jean-René Halde]

I'll be happy afterwards to provide you with the name and so on, and we'll be happy to review the account.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Halde.

I have a quick question for Mr. Macklem. On the $200 billion in the extraordinary financing framework, from your testimony I calculate $125 billion for mortgage, $13 billion for the crown corporations, and $12 billion for BDC. I'm missing $50 billion.

[Tiff Macklem]

To get to $200 billion, there is $40 billion of extraordinary liquidity provided by the Bank of Canada, and $10 billion is CMHC. Canada Mortgage and Housing Corporation--I think it was in November--introduced a new 10-year Canadian mortgage bond. This is a securitized bond of pools of 10-year mortgages or of a 10-year duration, which is guaranteed by the Government of Canada and sold into the private market.

Canada has the only mortgage securitization market, really, that's working in the world, and that's because we do it with a government guarantee. So that is a way that basically banks can fund their mortgages.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I'll come back and ask another question. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Pacetti.

Mr. Kramp, please.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair, and good morning, gentlemen.

I have a bit of difficulty with the one statement that you mentioned, Mr. Halde, and that of course is that your role is to be complementary to traditional financing. While that is admirable, and obviously I think that may be a prudent way to go, the reality is that in many parts of Canada, and particularly in rural Canada, there is no access to traditional financing--limited to none. As such, obviously, if they have no partner to start with, that leaves you not able to participate. We've seen this on many occasions when people have gone to the BDC and they've asked, “Where is the partner involved?” Have you had any thought in your deliberation, in your management, to give that any consideration?

[Jean-René Halde]

I'm not sure I fully understand the question, to be fair. Did I hear the word “rural” in the question?

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Yes, you heard the word “rural”. In most cases BDC is not a player in rural financing.