ATB Financial takes $79.6M in credit crunch charges
Last Updated: Friday, November 23, 2007 | 3:51 PM ET
CBC News
ATB Financial — an Alberta Crown corporation — revealed Friday that its second-quarter profits plunged by 91 per cent because of a $79.6 million charge for writedowns related to the credit crunch.
ATB reported Q2 net income of just $8.5 million, down from $93.9 million in the same quarter a year earlier.
| What is ABCP? |
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ABCP — asset-backed commercial paper — is short-term corporate debt that is made up of a bundle of loans like credit card receivables and car loans. This debt is then resold to other investors, taking the original loans off the books of the company that first issued them. That can lead to lower lending standards because the originator of the loans doesn’t have to worry about collecting. ABCP tends to yield more than Treasury bills, making it a popular place to park money. In Canada, about two-thirds of the $120-billion ABCP market is sponsored by the big banks. The rest is known as third-party, or non-bank ABCP. In 2007, holders of some non-bank Canadian ABCP ran into trouble refinancing the debt when a collapse in the U.S. subprime mortgage market led to a credit crunch as investors shied away from any investment perceived to be risky. |
It took a provision in the quarter of $79.6 million for potential losses and restructuring costs on third-party asset-backed commercial paper (ABCP).
The company also warned that its estimate of the fair value of its commercial paper is "subject to significant uncertainty."
ATB holds $1.2 billion in ABCP and is, along with other financial institutions, trying to restructure the debt to make it attractive to other investors.
The company called the provision a "serious financial event," but ATB officials said the company is still in good shape.
"ATB Financial continues to have an excellent year and from an operating perspective had one of our strongest second quarters on record," said ATB chief executive Dave Mowat, in a release.
ATB is the latest in a long list of Canadian financial institutions to take charges relating to the summer's credit crunch. Canadian chartered banks have announced they will take about $1.9 billion in charges in their fourth quarters.
Other companies that held ABCP have also recorded debt writedowns as the value of the short-term loans fell as the market for the commercial paper dried up.
ATB Financial is the largest Alberta-based financial institution in Canada, with assets of $22.5 billion. It used to be known as Alberta Treasury Branches.
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