Finance Committee on April 30th, 2009

[John McCallum, Liberal, Markham—Unionville, ON]

Maybe I'll leave it at that, because my time is short and I have one more question I'd like to ask.

We had Mark Carney here recently talking about how interest rates had come dramatically down and how he was pleased that in the private sector this trend had been mirrored. But we seem to have a case study in front of us, with Mr. Wilcox sitting beside Ms. Allan. If I heard you correctly, the interest rate you're charged by GE Capital has tripled at the same time the Bank of Canada interest rates have trended dramatically down.

Perhaps I could ask each of you to explain, because it seems like a bit of an anomaly when the general interest rates are trending down and yours have tripled, unless there's something specific to your company that you may or may not want to get into. Why have your interest rates charged by GE Capital tripled when the general trend, at least at the official level, has been so dramatically downwards?

[Jeff Wilcox]

Floor plan costs in general, across the marine sector, have almost tripled, and in some places more than that. We compared where we were this time last year with a floor plan interest cost of about 3.5%. We're now approaching 8.5%, so it's about a two and a half times increase.

It's something we've talked about numerous times with GE. It seems to be that their floor plan costs have gone up. Their access to money has gone up, and therefore being a profit-maker, as well as everybody else, they've increased our costs.

[John McCallum, Liberal, Markham—Unionville, ON]

Maybe I could ask Ms. Allan that question.

[Elyse Allan]

I would simply comment that, as was stated by Sara and Jeff, there were other people in the industry, none of whom are there any longer, and we're the only person left. Obviously, there's some risk in the industry that others have perceived. I would suggest that perhaps we see that and are translating it through in our pricing, not to mention that our own cost of capital, which is the reason why we are here, has continued to go up due to the lack of liquidity in the commercial paper and other forms of funding in the marketplace.

[The Vice-Chair, Liberal, Massimo Pacetti]

You have 30 seconds.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay.

One last question, again, to Ms. Allan. On the Bank of England example in the commercial paper market, is that measure taken by Britain consistent with the direction in which Mark Carney said he is potentially moving? Is that possibly on the horizon for Canada?

[Elyse Allan]

That, I would guess, you would have to ask Governor Carney. I would only say that when we look at the examples, we think it is a good example of the type of program we would recommend he consider.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. McCallum.

My thanks to the witnesses. Your comments were brief and members can ask a number of questions.

Mr. Laforest, you have seven minutes.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Good morning to all the witnesses.

My question is for GE Capital. You said that you raise your financing mainly by selling asset-based commercial paper. Now, we know that this kind of investment was largely responsible for the problems and the major losses that a number of pension funds have suffered.

I was astonished to hear you asking for the Bank of Canada to come to your assistance, given that you sold this paper to government groups, specifically government pension funds. It did not work out, they lost money and you are now asking for state assistance. I find that peculiar.

[Jean-François Bertrand]

I understand your concern.

The Canadian secured paper market was divided into two segments. There was the one set up by non-bank companies and there was the one using bank commercial paper, which has always performed very well. The other segment did not perform well; it has even needed to be restructured.

The market for secured bank paper has continued to perform well, but its image has been tarnished. Though the assets have performed well in this market, it is more difficult.

GE Capital has always used secured bank paper. So investors have not lost money and have had very good returns.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Okay.

Clients who bought the paper that you issued have not lost money.

[Jean-François Bertrand]

Absolutely not.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Okay.

Because it was secured bank paper?

[Jean-François Bertrand]

Yes.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

You were not involved with the other sector. You did not issue any.

[Jean-François Bertrand]

Exactly.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Can you tell us if retirement funds, such as the Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board bought paper from you?

[Jean-François Bertrand]

I have no idea who buys secured commercial paper because that is managed by the banks, who have their own clients. The banks are responsible for getting their own clients.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

Mr. Hanemaayer, among your recommendations, the Canadian Recreational Vehicle Association suggests broadening the mandate of the Business Development Bank to include financing. You want the chartered banks to be able to partially finance people buying recreational vehicles.

Is that because no chartered bank was doing it?

[Jeff Hanemaayer]

Currently the Bank of Montreal is fairly involved in RV floor plan financing--they're the example I mentioned--but it's restricted to dealers that they've had long-time relationships with. Like the other banks, they're really not interested in offering more lending to the segment.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Among your lenders for people wanting to buy a recreational vehicle was the GE Capital Solutions Group. Was that group the main source of financing for people wanting to buy recreational vehicles?

[Jeff Hanemaayer]

You're asking about retail financing now, not the wholesale financing that I've been mainly speaking about?

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Yes.

[Jeff Hanemaayer]

Are you going to answer this question, Pierre?