August 22, 2007
What about Disclosures on Asset Backed Commercial Paper?
With the the potential risk around Asset Backed Commercial Paper (ABDP), you would think there would be more disclosures about who is exposed. Aren't public companies supposed to be doing real time disclosures about real time events? Over investing in ABDP is now a material event.
The interesting thing for some of the mining companies in Canada who have reported tying up 90% plus of their free cash in non-bank ABDP's is: Wow, what were you thinking? Is that little extra bit of return worth the risk?
A billionare from Little Rock, Arkansas, Witt Stephens who founded and ran the largest off-Wall Street brokerage, once told one a customer: "The most important thing in investing your money is protect your principal!" I guess these mining companies and many others never had the opportunity to learn from a master such as Witt Stephens.
Here is an excerpt from an article from Today's Toronto Star:
"The chiefs of Canada's major banks yesterday pledged a concerted effort to ensure the massive market for bank-sponsored asset-backed commercial paper continues to "perform satisfactorily," while some in the investment industry wondered just who is sitting on an estimated $33 billion in non-bank-sponsored paper.
Short-term commercial debt, an erstwhile favourite with institutional investors, has been slammed by a liquidity crisis in recent weeks as turmoil that began with U.S. subprime mortgages spilled into other sectors of the credit market.
The total market for asset-backed commercial paper, known as ABCP, is worth some $120 billion, with the vast majority sold by bank-run trusts. While that segment of the market continues to run smoothly, commercial paper sold by non-bank companies, worth about $35 billion, has been rocked by volatility.
Earlier this week, the National Bank of Canada decided to shield its clients from potential losses by repurchasing about $2 billion worth of the non-bank variety from its money market funds, while raising the question of where the other $33 billion is being held.
Investors got some answers yesterday as companies issued a flurry of releases to clarify their levels of exposure. Among them, the Laurentian Bank of Canada said it has "limited exposure" on the order of about $20 million..."
The interesting thing for some of the mining companies in Canada who have reported tying up 90% plus of their free cash in non-bank ABDP's is: Wow, what were you thinking? Is that little extra bit of return worth the risk?
A billionare from Little Rock, Arkansas, Witt Stephens who founded and ran the largest off-Wall Street brokerage, once told one a customer: "The most important thing in investing your money is protect your principal!" I guess these mining companies and many others never had the opportunity to learn from a master such as Witt Stephens.
Here is an excerpt from an article from Today's Toronto Star:
"The chiefs of Canada's major banks yesterday pledged a concerted effort to ensure the massive market for bank-sponsored asset-backed commercial paper continues to "perform satisfactorily," while some in the investment industry wondered just who is sitting on an estimated $33 billion in non-bank-sponsored paper.
Short-term commercial debt, an erstwhile favourite with institutional investors, has been slammed by a liquidity crisis in recent weeks as turmoil that began with U.S. subprime mortgages spilled into other sectors of the credit market.
The total market for asset-backed commercial paper, known as ABCP, is worth some $120 billion, with the vast majority sold by bank-run trusts. While that segment of the market continues to run smoothly, commercial paper sold by non-bank companies, worth about $35 billion, has been rocked by volatility.
Earlier this week, the National Bank of Canada decided to shield its clients from potential losses by repurchasing about $2 billion worth of the non-bank variety from its money market funds, while raising the question of where the other $33 billion is being held.
Investors got some answers yesterday as companies issued a flurry of releases to clarify their levels of exposure. Among them, the Laurentian Bank of Canada said it has "limited exposure" on the order of about $20 million..."
