Finance Committee on April 30th, 2009

[The Vice-Chair, Liberal, Massimo Pacetti]

I'm asking you, because it would be in your best interest as well.

[Jeff Hanemaayer]

I'm a little at a loss as to why we would suggest Bombardier manufacturing--

[The Vice-Chair, Liberal, Massimo Pacetti]

For anybody who manufactures recreational vehicles, it would be in their best interest to develop an integrated financial system to get access to money to the retailer, wouldn't it?

[Jeff Hanemaayer]

The gentlemen from TAG said their model basically only supports their own organization, so I don't think they'd be interested in providing financing.

[The Vice-Chair, Liberal, Massimo Pacetti]

They said they wouldn't be, but I'm wondering why your organizations would not be interested in setting up something similar to what Tricor is doing.

[Jeff Hanemaayer]

We have not considered that. We would need capital sources. That's the key. Typically we're in the business of either manufacturing or retailing RVs, not in the business of acquiring capital to finance large loan portfolios.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Mr. Dechert, five minutes.

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

Thank you, Mr. Chair.

If you could stop the clock for a moment, I'd like to start with a point of order before I get to my question.

I'd like to make a point that I think some members of our committee need to be careful about the things they say about people's reputations. It's my understanding that Ms. Allan was brought into Coventree late in 2007 to deal with the issue at Coventree.

[The Vice-Chair, Liberal, Massimo Pacetti]

That's not a point of order. You can use your own time for that if you'd like, but that's not a point of order.

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

I think we need to be careful about what we say about people's reputations in public.

Ms. Allan, can you explain, in layperson's terms, the difference between a risk to the taxpayers of Canada between a AAA-rated security and, for example, a BBB-rated security?

[Elyse Allan]

That's Jean-François' area.

[Jean-François Bertrand]

Usually you separate the world of credit into the non-investment rate and the investment rate. The investment rate, in general, is very highly.... The probability of loss is pretty low. The AAAs are the best class in terms of probability of losses in the investment-grade environment. The BBB is still a very good risk, but it's not as good as AAA. That's basically the difference.

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

Thank you for that.

I have another question for Ms. Allan. What should we do, as a government, going forward to prevent a repeated collapse that we've seen in the ABS financing market in the last 18 months? What would you suggest we do?

[Elyse Allan]

I think we want to be making sure we're doing everything we can to get a healthy economy going and introducing as many diversified sources of lending as we can. The initiatives that have been taken, such as the EDC's expansion, BDC, are all very positive in getting liquidity back into the marketplace. Right now, I think reducing the cost of capital is important, and that comes with having more players in the market who find it attractive and who are willing to be there.

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

Do you think there are regulatory things that the government should be doing to make sure this kind of overheated market doesn't happen again?

[Elyse Allan]

I think the economists and other experts in the field have made a lot of comments as to what were the causes and what weren't, so I don't think I will comment on that at this point. I am not an economist. I can only ask how we get our economy going again. As a financier, I'd ask what the government can do to help us stay active in the market in a competitive way.

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

Thank you.

Mr. Rodd, in answer to an earlier question, I think you said that Tricor paper is typically not rated because your members know what the underlying assets are. If you were to sell into a facility like the CSCF, what would the rating likely be?

[Brian Rodd]

It would likely be a single A. That's how our insurance company partners internally rate it. When you look at all the risk mitigants and the cash reserving over collateralization, the things we wrap around the structure feel very comfortable, so it would come in as a single A.

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

It's a reasonably high-quality, low-risk—

[Brian Rodd]

Absolutely, and when you look at the loss ratios.... Just to finish off on that question to Ms. Allan, I think going forward the biggest thing we all have to do is the investors have to force transparency. They've got to know what they're buying; they've got to drill down and have the systems in place so they know exactly what is in these pools of assets. Subprime would never have gotten spun the way it did if that was the case. Derivatives, which I still don't understand, would not have become a big part of this pool, this $32 billion worth of frozen commercial paper right now.

So it's just back to the basics of understanding what you're buying. I don't think that needs government regulation; I think that needs a different thinking in the street. We see that a lot today. That's what people are talking about.

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

So you think the market is correcting itself?

[Brian Rodd]

Absolutely.

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

Thank you for that.

Mr. Campbell, you mentioned in your comments that Tricor's model is working well, and in fact it's the way the marketplace always should have worked.

Why didn't the marketplace generally work your way? Is there something the government should be doing to encourage your model?

[Joseph Campbell]

I don't think there's anything the government should be doing. I think it's a matter of a recognition that over the past number of years, when dealers--and this is across all industries, not just auto--placed a consumer finance contract and the lender took it, they absolved themselves of all financial risk.

Our model is basically that the person who puts the contract takes responsibility. So if you buy an automobile, a boat--I don't care what--from me and I place your contract with somebody, I have a vested interest in you making your payments throughout the life of it. I have some financial skin in the game, as Mr. Menzies said. That's what the original model was. Over time it evolved into more of “here it is, you take it and go”, and you're not involved in the whole link. That's why the Tricor model does work. It does work long term.

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

Do you believe that the market will simply regulate itself now, going forward, given what's happened over the last several months?