Collapse of the Canadian Commercial Bank and the impending demise of the Northland may have come as a blow to their would-be rescuers in Ottawa. But the Alberta business community fully expected the failures, and no amount of retroactive rationalizing can square the circle of political dodging that has developed.
“A certain respectable segment of the business community here,” I was told last week by Arthur Child, the president of Burns Foods Ltd. in Calgary and founding chairman of the Canada West Foundation, “has known for a long time that the CCB was being very badly managed. Whoever decided on the bailout six months ago made a mistake in judgment. What the businessmen in Alberta could see was the kind of loans the CCB was making, and from that it is fair to say that it was a terribly run operation. The American loans were especially shocking.”
What everybody is trying hard to forget is the clearly established link between the infamous Lenny Rosenberg of Greymac Trust and Howard Eaton, the CCB’s founding chairman. It was Eaton who pushed the Edmonton-based bank into a control position in the Westlands Bank of Santa Ana in California, which handled many of the questionable loans, and it was Eaton who encouraged Rosenberg to become the CCB’s largest shareholder. (At one point Rosenberg was voting 17 per cent of the stock, which clearly contravened Canada’s Bank Act.)
No matter what shenanigans Rosenberg indulged in at his Ontario-based trust companies, it was only when he attained a dominant role in the CCB that the federal government moved against him. Yet the bank was allowed to go on operating as before. Bank of Canada Gov. Gerald Bouey and Minister of State for Finance Barbara McDougall risked their reputations by issuing assurances about the CCB’s continuing viability —and lost.
Why they would do so, in view of the Eaton-Rosenberg connection and the obvious unwillingness of the management that succeeded Eaton to reverse the flow of bad loans, remains a mystery, if not a scandal.
Equally puzzling has been the winddown of the Northland Bank, which received a $510-million injection of taxpayers’ funds last summer. Once again, the bank’s financial and management
problems were clearly visible to observers on the spot.
One of the deeper puzzles here is that after Ottawa’s attempted bailout Northland actually managed to float a $15-million issue of subordinated bonds through Canada’s most conservative investment house, Wood Gundy Inc. in Toronto.
It is not yet clear how far up the ladder the Gundy auditors went in per-
forming their “due diligence” search. But the assurance they received from Inspector General of Banks William Kennett, on May 29, satisfied them, as the jargon goes, that “no material matters that would adversely affect the conditions of Northland” should influence the value of the bank’s debentures. Almost half the issue was sold to the Alberta government, $1.5 million to Andrew Sarlos on behalf of one of his clients, with the balance of $6 million distributed to western financial institutions.
On Aug. 27, just five days before McDougall pulled the plug on the CCB, Northland chairman Robert Wilson approached Alberta Treasurer Lou Hyndman to help finance a further bailout. Even though Hyndman had just bought about $7.5 million of Northland bonds, the appeal was turned down flat. This was at a time when the Alberta government was involved in putting together rescue packages for North West Trust Co. and Heritage Savings and Trust Co.
These and other aspects of the twin banking catastrophes have hit Alberta at an incongruous moment. For once, the paladins of the Oil Patch are actually busy drilling for petroleum instead of expending their energies on attacking the feds. “We see the Mulroney government’s Western Accord as an essential righting of a fundamental wrong,” said Jim Gray, executive vice-president of Canadian Hunter Exploration Ltd., one of the largest independents. “The industry feels comfortable with the Tories, and we are moving forward rather aggressively.”
Gray, whose own company is budgeting a 50-per-cent increase in exploration, added: “Looking back, I don’t think the mega-jumps of the late 1970s were very healthy for the oil industry. Prices that are flat or going up gradually allow us to assimilate all the opportunities. In those former boom times things got too good too fast. We could not assimilate the sociological changes. There wasn’t any discipline in the system, because if you made mistakes you got bailed out the next year because the price went up. The whole culture of Calgary altered too quickly. Now we are getting down to some good, solid growth.”
Although he’s one of Western Canada’s ardent free enterprisers, Gray was not at all displeased by the purchase of Gulf service stations by Petro-Canada. “They are setting us up,” he predicts. “I think Ottawa is letting the pressure build up, and then they’ll start privatizing Petrocan. If you were going to do it and you were a political strategist —which Mulroney is—you would first of all give Petrocan a whole bunch of good assets, make it a healthy company and then privatize as much of it as the equity market can accommodate.”
Meanwhile, the ruins of the two shattered banks that were supposed to move Alberta into contention as a major Canadian financial centre have turned a potentially healthy economic climate into a time of fear and foreboding.
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