Ned Goodman uses the "cartel" word

You can always rely on Dundee’s Ned Goodman to take the “call a spade a spade” approach, something that we applaud around here. He did it again yesterday, joining those of us with the view (see “Banks agree to support each other; what of the rest?“, August 21-07) that the Canadian Chartered banks are behaving more than a bit anti-competitive when they close ranks on the conduit industry. Mr. Goodman even used the “cartel” word, something that is straight out of the Competition Act. Where is the Competition Bureau? Still licking their wounds from Lakeport?

This from today’s Globe & Mail:

Mr. Goodman took aim at the major chartered banks and accused them of working to put competitors who sell ABCP, like Coventree Inc., out of business by reneging on commitments to provide emergency funding.

“It’s a monopoly, it’s a cartel, it’s an oligopoly. The thing they did a few days ago – where they all gathered together, saying, ‘If you deal with us, you’re good, if you deal with anybody else [like Coventree], you’re not’ – just proves that it’s an oligopoly.”

Asset-backed commercial paper is short-term debt in the form of mortgages, car loans or credit cards that is packaged up and sold to investors either by a bank or another finance company. Until recently, it was considered a secure place for corporations and investors to park extra cash for short periods, and earn higher rates than government T-bills.

But trouble began on July 14 when Coventree, the largest non-bank seller of asset-backed commercial paper, told a handful of Bay Street firms that some of the money had been invested in risky mortgages in the U.S., where poor lending standards and declining home prices have led to massive defaults in parts of the home-loan industry.

That disclosure made it impossible for Coventree to refinance and give some investors their money back when it was due. When the banks balked at providing the money, the market became paralyzed, and investors have refused to buy new ABCP securities unless they are sold by a major bank.

“There’s major lawsuits in the making,” Mr. Goodman said. “I think the [independent ABCP] players are going to be suing the banks, because the banks have essentially reneged.”

MRM