Fisheries Committee on June 11th, 2009

[The Chair, Conservative, Rodney Weston]

I call this meeting to order. This is meeting number 32 of the Standing Committee on Fisheries and Oceans. We are continuing our study of the Atlantic lobster fishery.

I'd like to thank our guests for being here with us today and taking the time out of their very busy schedules to come and share some information with the committee. Hopefully we can draw upon that as we put together our report for the lobster fishery.

Mr. Wrobel, you're going to begin.

We have some time constraints that we usually work around. I assume the clerk may have explained that to you beforehand. You'll hear a beeping noise coming from this device and it will alert you when the time is running out. I'd ask that if you hear that noise, you begin wrapping up your comments at that point in time. I generally don't cut our guests off. The members know they have time constraints to adhere to as well for their questions and answers. I'd ask you to be mindful of the timeframes in your comments here this morning.

Once again, thank you very much. I believe you're going to start with opening comments. In your opening comments, perhaps you wouldn't mind introducing the rest of the delegation, the representatives from the various banking institutions. I'll let you proceed from there.

[Marion Wrobel, Director, Market and Regulatory Developments, Canadian Bankers Association]

Thank you, Mr. Chair. Good morning.

My colleagues with me are Peter Conrod from RBC, Steve Murphy and Paul Seipp from BMO, and Craig Thompson from the Bank of Nova Scotia.

In the interest of time, I will be reading a shortened version of the opening remarks that I left with you.

It's my pleasure to be here today to participate in the committee's discussions of the Atlantic lobster fishery. I am joined today by colleagues from some of our major banks with expertise and experience in the fisheries industry, and together we would be pleased to answer more specific questions you may have. I have also provided you with an information package and a backgrounder related to our presentation today.

The CBA represents our 50 member banks, including domestic chartered banks, foreign bank subsidiaries, and foreign bank branches operating in Canada. Our members are present in virtually every community across the country, and they are key contributors to local and provincial economies as well as to the national economy.

Banks have a long history of helping their customers through difficult economic periods. Today, banks are doing the same with their business and personal customers. We understand that some customers are going through difficult times, and we're asking those customers to come in and talk with their banker to see what solutions can be worked out. We deal with situations on a case-by-case basis and we want our customers to succeed. Indeed, we succeed when our customers succeed.

It's important to remember that banks are traditionally about half of the business credit marketplace and only about a quarter of the total financing marketplace. Our response has been to try to fill the gap left by non-bank providers who have slowed the growth of their lending or pulled out of the market altogether. The latest Bank of Canada data tells the story. Year over year, bank financing of businesses is up over 6%, well in excess of the 3.7% growth in financing by all providers. Banks have stepped up to the plate to fill the gap left by others, but while we are trying to fill that gap, we can't do it all.

On the matter of interest rates, let me simply say that interest rates are falling. As the Department of Finance stated earlier this week, average interest rates have fallen steadily for both households and businesses. The average effective business interest rate was 4.16% in May, compared to 5.75% in December 2008. That's only over a six-month period.

In closing, Canada's banks are strong and secure, and Canadians remain confident in their banking system. This is an advantage for Canada that other countries do not have. Keeping that advantage will be crucial to the recovery of Canada's economy and to the long-term prosperity of Canadians.

Our banks will do their part. They will continue to lend prudently and protect their depositors' money. They will also be there to ensure that individuals and businesses continue to have access to credit and are able to afford to repay their loans. We will do this because we know that consumers and businesses are the drivers of the Canadian economy.

I thank the committee for inviting me here today. I will be pleased to respond to your questions, but first I invite my colleagues from BMO to make their presentation.

[Steve Murphy, Senior Vice President, Atlantic Division, BMO Bank of Montreal]

Thank you, Mr. Chairman.

We're pleased to have the opportunity to appear before you to discuss our activities in the Atlantic lobster fishery. I'm joined this morning by my colleague Paul Seipp, who is BMO's commercial area manager for Nova Scotia.

I am extremely proud of how our team has been working to serve customers in Atlantic Canada. On the commercial banking side, more than one in four businesses in the region have chosen to do business with BMO Bank of Montreal, and our market share continues to grow. We intend to continue that growth and reach the number one position.

We bring a strong commitment to our customers throughout Atlantic Canada, including those involved in the lobster industry and the wider fisheries industry. In fact, for loan authorizations under $5 million, BMO has provided $142 million to businesses in the saltwater fishing industry in Atlantic Canada. That's 35% of the market among banks.

As all of you know, the Atlantic lobster fishery has been hit hard. The economic downturn has led to falling demand, particularly in the important U.S. market. The result has been a collapse in prices to a 20-year low of below $3 a pound. No wonder Leonard LeBlanc of the Gulf Nova Scotia Fishermen's Coalition has said that the current price for lobster has made it cheaper than lunch meat.

BMO is committed to standing by our customers both in good times and in difficult ones, and we are committed to standing behind them now. Across the region, we have very seasoned bankers who know their customers well. Many of our employees live and work in the community and have seen first-hand the effect the current downturn in the lobster fishery is having on neighbours, friends, and family. We understand what they are going through.

When it comes to lobster fishers, we accept most requests for loans, and we are sticking with our clients when it's time for loan renewals. Our bankers are armed with high discretionary limits, which ensures that lending decisions are made by those bankers right in those communities--bankers like commercial account manager Rob MacLeod, who takes regular trips with his clients out to drop pots on the opening day of lobster season. Our message to our customers is this: come in and see us for a conversation about your financial situation so we can help you through this difficult time.

By the way, Mr. Chairman, for the benefit of my fellow bankers here today, we're delighted to see their customers too.

[Voices]

Oh, oh!

[Steve Murphy]

In fact, I'm happy to share with you something we have been doing for some time to help our customers manage in the downturn, including those in the lobster fishery. We are working with our customers to see what kinds of arrangements can be made to get them through, including deferral on loan or mortgage payments and special accommodations for commercial customers on a case-by-case basis. As I said, we stand behind our customers in their time of need.

Mr. Chairman, I want to assure you and your colleagues on the committee of our commitment to continue supporting the lobster industry and the fishery in general. I want to voice our support for efforts to provide direct assistance to those affected by the current difficulties, such as those announced by the federal government yesterday, but I also call on all Canadians to stand behind our lobster fishers by buying more lobster this summer.

I encourage everyone to bring more lobster home, invite your neighbours, and enjoy one of Atlantic Canada's real treasures in your own backyard. You'll be having a treat and helping out your fellow Canadians at the same time.

Thank you very much.

[Peter Conrod, Regional Vice-President, Commercial Financial Services, Atlantic Region, RBC Royal Bank]

Good morning, ladies and gentlemen. Thank you for allowing Royal Bank of Canada to contribute to the discussion on the lobster fishery and access to credit. My name is Peter Conrod, and I've been an executive officer with Royal Bank for six years. As regional vice-president of commercial financial services in the Atlantic region, I hold responsibility for our commercial business in Atlantic Canada and lead a team of 114 people dedicated to serving our commercial business clients.

Roughly 31% of commercial businesses in Atlantic Canada would consider RBC to be their primary banker, and RBC holds the lead market share in both business loans and business deposits. Recent numbers indicate we have $202 million in authorized business loans to the fishing industry, with outstanding loans totalling $111 million. Sixty-six per cent of our fishery loan portfolio is extended to processors and wholesalers, with 23% being provided to our harvester clients. The remaining 11% of the portfolio is extended to the finfish segment. Of the $202 million in authorized business loans, approximately 89% is to the shellfish segment, with most of that to the lobster sector.

As it pertains to your area of interest, RBC has been active in providing financial support to the lobster fishery by way of term loans to the lobster fishers to finance the purchase of both vessels and licences. We provide term loans to the lobster fisher to finance equipment purchases, and provide operating loans, term loans, and foreign exchange facilities to lobster pound operators.

Of most interest to this committee may be our support to the lobster fishers. Roughly six years ago we designed a term lending program to support the purchase of a vessel and a licence. The program provides up to 75% financing of both the vessel and the licence, with the vessel loan being structured to be repaid over 10 years and the licence loan over five years. In effect, given the typical split, this provides roughly seven years' financing of the combined assets.

This is purposely done over seven years, as we knew from our years of experience in the industry that there would be challenging years for our lobster fishers, and this structure allowed us to waive principal payments in those years when they were cashflow challenged. This past winter we saw another of those challenging years in which prices at the wharf were low and demand for the product in the United States and Europe was soft. We reached out to have one-on-one conversations with our clients, and where they were cashflow challenged, we offered to waive the semi-annual principal payment typically due on the loan: approximately 25% of our clients took us up on that offer.

The same offer is being made to our clients this month, as our loan structures typically have a second principal payment due the end of June. It's too early to determine how many of our clients may take us up on our offer to waive the principal payments this month.

Our fishing industry clients are typically served by RBC commercial account managers who work and live in the same communities where our clients live, such as Barrington Passage, West Pubnico, Yarmouth, Church Point, and Digby.

In summary, Royal Bank of Canada has been an active supplier of debt capital to the lobster fishery, and we will continue to serve this segment well. Our lending policies remain unchanged over the past six years, despite today's very challenging times, and we are open for business to support industry participants who are not clients of RBC today.

Thank you.

[The Chair, Conservative, Rodney Weston]

Thank you very much, gentlemen.

Mr. Andrews.

[Scott Andrews, Liberal, Avalon, NL]

Thank you so much for coming in.

Thank you, Mr. Chair. I'm going to share my time with my colleague Scott.

On the end there, you just hit at something that I was going to ask, so I'll probably start with that and I'll put the question to both Steve and Craig.

You said your lending policies have not changed over the last six years. Is that across the board for the other institutions as well?

[Steve Murphy]

Yes, it is. Ours are the same, as they have been, and today our support to the industry is what it was five years ago.

[Craig Thompson, Area Vice-President, Atlantic Commercial Banking, Bank of Nova Scotia]

That would be true with Scotiabank as well. There has been no change in policy.

[Scott Andrews, Liberal, Avalon, NL]

Okay, because the perception out there on the ground and what we heard--and I want you to react to this--is that it has changed, that something has changed in the banking system. Fishermen have not been able to get access to the credit, as they used to be able to. Why would that perception be there if your policies have not changed?

[Peter Conrod]

I would suggest that some of the comments might relate to some of the challenges they've had from a cashflow perspective. If a fisher was looking to acquire a new licence and acquire a new boat, that might have some impact on it. I can assure you our policies haven't changed, so to the extent that five years ago, if somebody wanted to purchase a vessel and licence, we would lend 75% over those repayment terms, those would still be the terms and conditions today.

[Craig Thompson]

And that would be true with Scotiabank as well. What we have seen is a bit of a drop in demand for financing in the last little while, which was no doubt in response to the fact that prices are down and people are concerned about the viability of the industry. The credit opportunities we've been presented with, we have approved. So again, to echo Peter's comments, credit that would have been approved last year, prior to the drop in prices, is being approved now, but what we have seen is a bit of a drop in the demand for credit.

[Steve Murphy]

That would be same situation for us too.

[Scott Andrews, Liberal, Avalon, NL]

I have one other question.

Another issue for some of the bigger operators is getting the capital needed at the beginning of the season to get through the season. Has that also changed for them, for their getting access to capital?

[Peter Conrod]

From my perspective, it hasn't. I think this past winter we saw a number of the lobster pounders cautious about purchasing as much volume as they typically would have because of concerns around where the price might be in international markets and where exchange rates might be. So I think some of the lobster pounders were cautious around purchasing, and that had some impact on the lobster fishers, but in terms of accessing capital from us, there was no change.

[Craig Thompson]

Scott, are you speaking of the fishermen having difficulty accessing capital or the processors?

[Scott Andrews, Liberal, Avalon, NL]

The fishermen. That was my first part.

[Craig Thompson]

Yes, and I think, again, what we're being told and what we're seeing is that a lot of the processing clients are holding excess inventory from last year at higher prices. So there may not have been as much demand for product, as it was being caught this year as well.

[Steve Murphy]

Typically, the fishers would have been operating a line of credit available to start their season, and that has continued to be the case.

[Scott Andrews, Liberal, Avalon, NL]

Okay. I have one other question before I hand it over to Scott.

If your policies haven't changed and they haven't been working in the good times, don't you think that now that we're in the bad times, it's an indication that maybe your policies should change?

[Steve Murphy]

I'll take that one.

The policies we're looking at right now would be ones of flexibility. For instance, one of the messages we are giving to our customers is that if there is a situation where cashflow is challenged from the perspective of price declines, we would be very proactive in reaching out and letting our customers know that if an alternate arrangement is required, we are very much interested in participating in that.

The key is to have good conversations with our customers and to reach out proactively, to check in, to know what's going on in the industry, and to have visibility with our customers. And that's what we've been doing, more so this year than in any time previous.

[Scott Andrews, Liberal, Avalon, NL]

Scott.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Just on that alone, I want to talk about the financing option.

To the RBC, you talked about a seven-year average. So you're looking at a 10-year financing for a vessel, five years for the licence. Now, the five years for the licence seems to be a pretty short timeframe. It was in October 2008 that you had the decision, which involved you, of course, Saulnier v. Royal Bank. So then you have a legitimate piece of property, or at least under the law. The Supreme Court says you're looking at it, so even though it's common property you're still looking at something that is legitimate to use.

My question is why the short period of time on the five years?

[Peter Conrod]

I think the reason would relate to the fact that a licence is more of an intangible asset. Its value has less certainty at some point in the future than perhaps a boat may have. The Saulnier decision, as I understand this, recognized the right of the bank to have an independent trustee in bankruptcy realize on that asset and to sell it and to apply the proceeds to whoever had a registered charge on that.

Many of our loans are to business entities, incorporated entities, and the licences are held by the individuals, and so typically we're taking a personal guarantee just by virtue of the fact that we need to get a charge on the licence. But in the absence of the individual declaring bankruptcy, my understanding is that we have no ability to realize on that asset.