* National Bank with largest payout at C$75 million
* Banks, brokerages agree to reviews of compliance
(Recasts with other banks, adds analyst)
By Pav Jordan and Jennifer Kwan
TORONTO, Dec 21 A group of Canadian banks and
brokerages will pay about C$139 million ($131 million) in
penalties for allowing investors to buy asset-backed commercial
paper that traded in a market that seized up during the U.S.
subprime credit crisis.
A total of seven banks or brokerages on Monday were ordered
to pay fines by regulators in Ontario, British Columbia and
National Bank of Canada (NA.TO), the country's
sixth-largest lender, agreed to pay C$75 million in fines and
fees, including C$4 million for a financial education
Canadian Imperial Bank of Commerce (CM.TO) and its capital
markets arm will pay C$22 million, including legal fees, while
Scotia Capital Inc. (BNS.TO) agreed to C$29 million in fines
Smaller settlements were reached with HSBC Bank Canada,
(C$6 million), Canaccord Financial Ltd. (CF.TO), (C$3.1
million) and Credential Securities (C$200,000).
Laurentian Bank Securities Inc (LB.TO) agreed to a
settlement of C$3.2 million.
Banks and brokerages accepted the settlements after
hearings with Canadian regulators, including securities
commissions in the provinces of Quebec, Ontario and British
Columbia, and the Investment Industry Regulatory Organization
of Canada (IIROC), a self-regulatory body, in Toronto.
In each case the banks or brokerages are accused of failing
to take appropriate steps to protect the interests of their
clients by selling them the asset-backed commercial paper. The
short-term investments had been considered to be a relatively
risk-free investment but their complex structure proved a
decided weakness when the housing crisis hit in 2007.
"CIBC has admitted it engaged in conduct contrary to the
public interest," the OSC said in announcing the settlement.
Similar statements came with the rulings for the other
banks and brokerages involved in the ABCP saga, which began
when the market collapsed in August 2007.
The market seized up because investors balked at rolling
over the paper on concern that the securities were backed by
subprime mortgages during a wave of defaults and foreclosures
in the U.S. housing market. The frozen market left those
holding the ABCP unable to redeem some C$32 billion ($30.2
billion) of the paper.
"There's lessons (here) to investors in understanding what
they are buying. There's lessons to brokers in understanding
what it is they're selling," Dan Williams, a partner at Kilgour
Advisory Group and expert on ABCP, said as regulators were
mulling Monday's settlement rulings.
"Hopefully, there's lessons to structurers as well in that
there was a fairly significant underestimation of the risk that
was underlying these assets."
The former sellers of the ABCP, a short-term debt
instrument with typical maturities of 30 to 180 days, also
agreed in the settlements on Monday to submit to a review of
their compliance practices and procedures.
(Reporting by Pav Jordan and Jennifer Kwan)