Canadian Counterparties:Let’s Start With $832-billion

Back in September of 2008, the Financial Post cited RBC Capital Markets analyst Andre-Philippe Hardy as estimating that top Canadian Banks –  referred to as the Big Six –  are likely  holding about $832-billion of credit default swaps.

Hardy said some of those positions may be in trouble because of the collapse of Lehman Brothers and the potential failure of the insurance giant AIG, both significant players in the US$62-trillion global credit default swap market.

On March 16 2009 The National Post reported that  Bank of Montreal, Canada’s fourth largest bank, received over one billion dollars of U.S. Taxpayer money funnelled through the AIG bailout.

The documents show a least US$1.1-billion of bailout money was funneled to BMO alongside payouts of up to US$13-billion each to U.S. and European banks.

The payments to BMO included US$200-million in collateral owed for credit default swaps and US$900-million to unwind separate swaps under a scheme that saw the Fed and AIG buy the underlying securities.

John Aiken, an analyst at Dundee Securities, said: “Was this all of BMO’s exposure? How much is still out there? We just don’t know, which doesn’t help from the point of view of investor confidence.”

The analyst said one of the key reasons Canadian bank shares were depressed was the “whole unknown of just what the full capital repercussions would be from the various exposures. This is not something that is going to shake itself out anytime soon.”

BMO declined to comment.

 Despite payouts to BMO, no one seems able to clarify the full extent of Canadian Counterparty exposure. If, several months ago, a bank spokesperson told me that only 2% or 5% or 20% of those deals were of concern, I might have believed it.

No more.

The 832 billion refers to Credit Default Swaps, but we know this is the language of fraud so the more important point would be:

the whole unknown of just what the full capital repercussions would be from the various exposures

Well, yeah. I guess.



As posted earlier, not everyone  is in agreement with Ed Liddy and other financial figures who maintain that other AIG units ae in sound financial health.

From a March 18/09 Newsweek article entitled  “The Next AIG Scandal?” :

AIG’s supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being “healthy,” as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it “a house of cards.” Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG’s own 300-page annual reports, Gober argues that AIG’s 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree.


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