BUSINESS

A banking collapse

Ottawa closes a once-proud trust company

DEIRDRE McMURDY April 29 1991
BUSINESS

A banking collapse

Ottawa closes a once-proud trust company

DEIRDRE McMURDY April 29 1991

A banking collapse

BUSINESS

Ottawa closes a once-proud trust company

A few minutes before 10 a.m. on April 18, a determined team of federal accountants and regulators left their offices in downtown Toronto. Their destination was the Yonge Street head office of Standard Trust Ltd., the country’s ninth-largest trust company, three blocks away. After monitoring the failing health of Standard for nine months, Michael Mackenzie, the federal government’s superintendent of financial institutions, had decided to shut down the company to avoid jeopardizing the security of the $1.5 billion on deposit in 140,000 accounts. Arriving unannounced, the regulators and their auditors declared that they had orders from Mackenzie in Ottawa to seize the company’s assets. They also demanded that Standard immediately close its 37 branches across Canada.

Said Nancy Murphy, an Ottawa-based director of communications for the federal regulatory agency: “This was the result of a long-term process. You don’t take control of a company’s assets lightly or with any glee.”

Last week’s decisive action by Mackenzie and his officials marked the first time that Ottawa has stepped in to seize control of a deposit-taking

financial institution since it closed two -

Alberta-based banks in 1985. It was also the latest in a series of embarrassing setbacks for Standard’s principal shareholder, Torontobased Roman Corp., a financially troubled holding company. Earlier in the week, the Ontario Securities Commission charged Roman’s chairman, Helen Roman-Barber, and 10 other members of Standard’s board of directors with failing to make public the extent of the trust company’s financial difficulties. The OSC also said that Standard officials had acted “contrary

to the public interest” last -

July by authorizing the payment of a 25-cent-per-share dividend to shareholders.

Nearly half of the $1.8 million paid out in dividends went to Roman Corp., which has been trying to raise money recently in order to reduce its debts.

In the first nine months of 1990, Roman lost $97.3 million.

Standard has been the subject of intense scrutiny by shareholders and regulators since July because of concerns that it was carrying too

many nonperforming real estate loans. But, until last week, it seemed likely that the 27year-old trust company—founded in 1963 by uranium mining magnate Stephen Roman, Roman-Barber’s father—would avoid a full-scale collapse. In January, the company named a new president and chief executive officer, Juri Koor, and announced that it was looking for a potential buyer. The search concluded on April 9 when Montreal-based Laurentian Bank of Canada signed an agreement in principle to purchase Standard’s healthy assets—including its branch network and its $850-million portfolio of healthy loans. Standard Trustco would have retained the $350 million in nonperforming loans.

Standard’s relief was shortlived. Just eight days after it announced the Laurentian deal, a group of 25 creditors who are owed a total of $100 million by the firm’s parent company, Stanz dard Trustco Ltd., objected to I the proposed sale. Led by Caisse g centrale Desjardins, the Bank of £ Tokyo Canada and Swiss Bank

Corp. (Canada), the creditors filed a petition for bankruptcy and asked that the courts appoint a receiver to operate Standard Trustco. They maintained that the Laurentian offer would have stripped the struggling trust company of its few remaining healthy assets, making it virtually impossible for the creditors to recover anything on their loans.

For his part, Koor told Maclean’s that he was “incredibly surprised” by the creditors’ decision. He said that he had met with them at least once a week during the past three months and that relations “were as friendly as they can be when you owe someone $100 million.” He added that the creditors had access to all the documents relevant to the proposed Laurentian deal. Declared Koor: “They never once indicated that they were against the transaction. I warned them that the bankruptcy route was irresponsible and inappropriate.” Indeed, Koor said that he was prepared to call in the regulators himself in order to prevent a nm on deposits. “Once you use the bankruptcy word,” he added, “there is a high likelihood that depositors will want their money back.”

John Evans, chief executive of the Ottawa-based Trust Companies Association of Canada, also criticized the “disruptive” approach taken by Stang dard’s creditors. But he added that § Canadian investors and depositors 1 should be heartened by the govemÈs ment’s decision to intervene. Said EvI ans: “This should restore confidence for the public because it indicates that the regulators are there and are willing to go the last mile to resolve these situations.”

At week’s end, federal regulators were declining to predict when Standard’s branches would reopen to the public. They added that teams of auditors are now examining the company’s books at branches across Canada to take stock of the company’s cash and assets. For now, Standard’s 127,000 retail customers will be unable to withdraw money from their accounts. Customers who require immediate cash to pay rent or other bills can apply for advances from the Canada Deposit Insurance Corp., a federal agency that insures deposits to a limit of $60,000 for all regular accounts at the same institution. Said Murphy: “A lot of depositors have called our office. They’re not angry or frightened—they just want to know what they should do.”

For his part, Koor says that he is trying to stay in touch with the firm’s employees in order to maintain their morale. He added that he is continuing to discuss the possibility of a takeover by Laurentian. “It is the best deal on the table for everyone. And nothing is dead until the paperwork is done,” he said. As of last week, however, the once-proud trust company was displaying few vital signs.

DEIRDRE McMURDY