Evidence of meeting #35 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was edc.
A recording is available from Parliament.
10:05 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
The first shot was made up of two tranches, $10 billion and $1 billion, that's the $11 billion. And there's $1 billion left, to go to $12 billion.
10:05 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
The $1 billion left is going to be for small enterprises?
10:05 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
We will see what happens.
Quite candidly, we still don't know if everyone will be interested in going ahead with the programs. Some of them might say that by now they've figured out a different way to finance themselves, that they can issue corporate bonds and they don't need securitization. We're still waiting for all of the responses to find out exactly where we stand.
10:05 a.m.
Conservative
10:05 a.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you, Mr. Chair.
Gentlemen, good morning, and thank you for your presentations.
Perhaps you can clarify, Mr. Halde, for me, Mr. McCallum, and others, as there seemed to be some confusion earlier about the way the asset-backed security market normally operates. He was concerned about the speed with which the cheques are written. Isn't it always the case—just help me so I understand it—that dealers sell, lease, and finance their products? The finance company then packages those together into a trust, and then when they have a certain aggregation of value, they offer that security to the marketplace. Isn't it the same thing that's going on now? You can't put the cart before the horse. The sales and the leasing have to be done, consumers have to be there to buy the products, and the aggregate bundle of securities has to be put together into a trust and then offered.
Is that the stage you're at right now?
10:05 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
I wish I had explained it as well as you just did. Yes, you are absolutely correct.
10:05 a.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you.
As we speak, dealers across Canada, hopefully, are offering special incentives to customers and those vehicles and equipment are being sold. Within a few weeks, the package of securities will be offered to you and you'll purchase it.
10:10 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
Our hope is that by now the large auto and equipment companies, knowing that the BDC will be buying their paper, are talking to their dealers and saying, “We now have the ability to go back to leasing and lending like the good old days, so go ahead and be aggressive in the marketplace. Get those cars rolling off the lot. We will bundle this, and when we have enough and it adds up to $300 million, we'll go to the BDC and they'll write us a cheque.”
10:10 a.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Essentially, the marketplace today should be similar to the way it worked prior to the credit crisis, we hope.
10:10 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
Except that you have to take into account that there are a few more factors, like the fact that we're in a recession, and consumer behaviour, I'm sure, is affected by that. There are all sorts of other reasons. But technically, in terms of the finance market, yes.
10:10 a.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
I have a further question for both of you gentlemen. Can either of you remember a time in Canadian history when either of your organizations was required to put so much money out into the marketplace in such a short period of time?
10:10 a.m.
Senior Vice-President, Financing Products Group, International Trade, Export Development Canada
The answer to that would be, no, never in our history, and not just domestically but internationally, which is our primary role. The international markets are very tight for financing also. Ordinary trade finance has shrivelled up. So we are very much in demand across the board.
10:10 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
If I could add to that, I'm a relative newcomer to BDC, with only four years of service, but we do have people who were there in the 1982 recession and people who were there in the 1991 recession. What I'm hearing from these people is that never has the bank been more aggressive in trying to put money out there, looking at every single way we can to help, doing all sorts of stuff we had never done.
Getting involved in syndication is something we had never done. Buying bundles of commercial mortgages is something we had never done. Offering an operating line of credit guarantee is something that I think we might have done once, a long time ago, but certainly not in the recent past. There's an awful lot we're doing today that has not been done before.
10:10 a.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you.
Mr. Halde, a number of my colleagues, including Mr. Wallace and Mr. Mulcair, have asked you a similar question. That is, what could the government do, in terms of the regulations under which you operate, to enable you to have more latitude in taking a higher-risk profile?
All members of Parliament have heard from small and medium-sized businesses in their constituencies indicating they're having difficulty obtaining financing from BDC. They all, of course, say their businesses are good quality, long-term businesses that are going through a bit of a difficult situation. What do we need to do, as a government, to make it easier for you to raise your risk profile and help some of those companies a little faster?
10:10 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
It's very tough for me to respond to that question, because we're just one instrument of public policy among many in the arsenal of the government. There are, as you know, regional economic development agencies.
10:10 a.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Is there a loan-loss reserve ratio that's set by regulation that the government could amend, under which you operate?
10:10 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
We don't have a loan-loss reserve ratio. Everything is on our balance sheet.
One of the ways that has been done in the past--not frequently, but it has been done in the past--is for the government to provide us with a loan-loss reserve in some cases for specific programs where it is understood that a particular project will not make money and, accordingly, the bank needs to be reimbursed. It has happened very infrequently in the past, but it has. And maybe that's something one should look at. But we don't make public policy, we're just the instrument.
10:10 a.m.
Conservative
10:10 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chairman.
I have a couple of questions to EDC.
I'm hoping you can help me, actually, with a specific case, but before I get to that, can you just clarify your mandate? I notice in your brief you start by saying that “EDC provides: loans and lines of credit to foreign companies buying from Canada; loans to help Canadian companies invest in projects or operations abroad”. I thought your mandate was mainly insurance, but you're also a lender?
10:10 a.m.
Senior Vice-President, Financing Products Group, International Trade, Export Development Canada
Thank you.
Yes, that paragraph you're referring to relates to the financing side of EDC. EDC is both, if you like, a bank and an insurance company. And it's true that easily two-thirds of the trade that we support uses our insurance products, but the other third or so uses our financing products.
In the financing, most of our loans are to foreign buyers or to foreign projects where we therefore finance the purchases from Canada of exports, so we're lending, but the obligor is the foreigner.
10:15 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Would that put you in a position to compete even against BDC? Are you competing against BDC?
10:15 a.m.
Senior Vice-President, Financing Products Group, International Trade, Export Development Canada
In the domestic marketplace we would also, for example, lend working capital to an exporting company. And under our ordinary regulations or our previous regulations, we would be looking at companies that had at least 80% of their revenues coming from exports. Those regulations have been suspended, as you know, for this two-year period. And in that environment we have enhanced our collaboration with BDC, ensuring that in the new business flow that comes from banks--because we partner with banks in this situation under BCAP--for companies with sales less than $50 million, BDC is the first port of call; and if they're larger than that, the first point of contact would be EDC. But in that space it depends on the sector who does what. So we collaborate closely.
10:15 a.m.
Liberal
10:15 a.m.
Senior Vice-President, Financing Products Group, International Trade, Export Development Canada
No, we don't compete. Usually we collaborate. We may share where the risks are a little higher and maybe we take a piece each, but most of the time it's clear who has an established relationship and who doesn't and we work it out.
10:15 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
You do work it out. Okay.
Who is your competition in Canada in terms of the insurance business? I know you have CIT Group Inc. I'm not sure who else would be your competitors.
