1. The ABCs of ABCP (asset-backed commercial paper )
You may wonder why your credit union has been affected by the ABCP market
disruption.
Under normal conditions, ABCP is a high-quality, highly liquid investment vehicle. Last
year, concerns arose that the underlying collateral for some commercial paper sold to
Canadian investors might include securitized sub-prime US residential mortgage loans.
Investors became nervous and refused to renew these short-term investments as they
matured. With no buyers, the market ‘froze’, and the securities became illilquid.
Our first commitment is to our members
A small number of Vancity members privately held $5 million in ABCP. Shortly after the
August 13 system-wide freeze of trading, Vancity elected to guarantee the liquidity and
value of those members' ABCP investments.
Citizens Bank
As a national bank with unique collateral requirements, our subsidiary, Citizens Bank,
held $77 million of ABCP, representing 0.3 per cent of Vancity's total consolidated asset
base. In late December, we assigned a one-time write down of $13.9 million on Citizens'
ABCP holdings.
Last year, a national committee was struck to develop a plan for restructuring the ABCP
market and assign a value to the paper. With member equity of nearly $580 million, the
Vancity Group is very well positioned to await the outcome of the national committee’s
work later this spring.