Finance Committee on March 31st, 2009

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

So you would let the BDC operate as it currently normally does?

[Michael Conway]

All banks assess risk, and in these times, notwithstanding my previous comments, something has to be done to help us through the economic situation. We're looking at such things as increasing some of the guarantee programs, and that could be applicable to some body like BDC.

BDC is one of the only lenders, for example, that is actually providing venture capital financing in the country. When we look at where the hurt is hitting the most, it's in the small businesses. For the larger businesses--and my colleague beside me may be able to comment on this--there is credit availability. It's more expensive, it's more difficult, but there is some. Some of the smaller organizations, particularly those that are going to fuel the knowledge economy—the start-ups, etc.—are really having trouble getting start-up capital and follow-on financing.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

We need to encourage BDC, and perhaps we need to loosen their requirements and let them take a little more risk, acknowledging that there may be some failures and that they shouldn't be unduly held to account if there are.

Does anyone have a view?

[The Chair, Conservative, James Rajotte]

Just very briefly? Are there no other comments to that?

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Am I out of time, Mr. Chair?

[The Chair, Conservative, James Rajotte]

You're out of time. I'm sorry, Mr. Dechert.

We'll go to Mr. Pacetti, please.

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

Thank you, Mr. Chair.

Thank you, witnesses; it's always interesting.

I want to focus a little on the credibility aspect. Mr. Dechert was just talking about BDC, but besides BDC, Mr. Conway, I wonder.... You said smaller businesses are having a hard time; there is a tightening of credit. But depending on the week.... Last week we had the banks here, and they said everything was fine. CMHC put $125 billion up for bid, and it wasn't all taken up. There seems to be enough money flowing.

That was last week, and this week it doesn't seem that the money is flowing. What's happening? Are the Canadian banks actually busier than usual? Are they picking up the slack, but people are exiting? My understanding is that there are some foreign banks exiting and that the Canadian banks are having a hard time keeping up.

I don't feel that it's just small business; I feel that it's credit availability overall.

[Michael Conway]

In the appendix, we've segmented our survey into public and private, large and small. We thought that would be helpful input for the committee. We saw across the board that the tightening of availability, the cost increase, and the process difficulty have increased for all sectors, across the board. This is to say that it's not only small business, but when we looked at it closely, small businesses were having the hardest time of it.

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

Yes. They have fewer avenues to go down to get money.

[Michael Conway]

Exactly. To your question about availability of credit, certain avenues have shut down. Some of the foreign banks are lending less, certainly on the—

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

Which avenues have shut down, though?

[Michael Conway]

On the equipment leasing side—

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

I'm going to that when I speak to Mr.—

[Michael Conway]

The foreign groups have shut down; a lot of the U.S. banks are lending less.

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

So they are lending less. Are they just lending less, or are they pulling back?

My understanding is, for example, that BMP is trying to get out of the market.

[Michael Conway]

I'll let my colleague, who deals with the syndicates, speak to this.

[Michael Boychuk]

I would start by commending the Canadian banking system for what we have. The example we've been able to make on the world scene deserves great accolades.

When we look across the world, there's not a single banking system that, like ours, hasn't had to get aid or become wards of the state. Having said that, there's no question that this is a business. Most of the banks are corporations that are controlled by shareholders, and they're in it to make profit.

To your point, and to what I've seen in the marketplace today, the foreign banks, the schedule II banks, if they're participating, are participating at very minimal levels and are not participating for any extended term. Getting beyond 364-day credit facilities today from a foreign bank doesn't happen.

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

That's my understanding, but is it because they don't have access to credit as the Canadian banks have, or is it just because they don't find that Canada is a place to invest? I guess that's what I'm getting at.

[Michael Boychuk]

I would say it's a couple of things. One is that the Canadian banks clearly have the key relationships with the major Canadian companies here, and since banks work from all kinds of ancillary businesses, the foreign banks are in a secondary position. I would also say that they depend on their financing coming from their home countries. As I mentioned earlier, those home countries are in some pretty difficult positions today.

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

Thank you.

Mr. Powell, what happened all of a sudden in your market? Did things dry up? I look at your membership, and there are some pretty legitimate companies, for lack of a better word—some pretty stable companies—and yet the whole industry seems to have dried up. Now we're relying on however many billions of dollars. Is that going to be the problem solver?

[David Powell]

I think you've hit the nail on the head.

The crux of the issue is that our members, these non-bank financing companies, relied very heavily on non-bank funding, on insurance companies and pension funds in particular, which would essentially buy the cashflow from a package of leases and loans, and then the leasing company would take the proceeds of the sale of the cashflow and put them forward for new credit. The simple fact is that because of the way the economic downturn has impacted insurance companies and pension plans, they have basically stopped buying.

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

They stopped buying 100%, cold turkey?

[David Powell]

It's just gone. Sun Life is still buying, but it has halved its budget. But Canada Life and Manulife Financial are out of the business for the time being, and that's because they've been told they need to allocate their funds for other purposes. It has nothing to do with the quality of the credit or the quality of the products that we're offering. They just need their money somewhere else.

[The Chair, Conservative, James Rajotte]

Thank you.

We now go to Mr. Kramp.

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

I have a quick question. Your organization, after the traditional lenders, is the largest provider of debt financing. What percentage would you have of the entire market?