City  ABCP INVESTMENTS

 July 28, 2008, Lethbridge City Council and Administration provided an unaudited financial report to the citizens of Lethbridge, a report that was, at that point in time, late by over three months. That report confirmed that the City felt unable to complete an audited report normally due to be delivered to the Province of Alberta and citizens by May 1 of each year.

Also disclosed on that date was the apparent reason to deliver the financial reports in a timely fashion. It was all surrounding an investment (actually it was a number of different investments) of approximately $30,300,000.00  which were invested for short term return of principal and interest. The dates, amounts invested and dates of repayment all disclosed in a submission to City Council in January of 2015.

When City administration and the Audit Committee (comprised at least of Mayor Tarleck, and Ald. Dodic (as chairman) and Ald.Simmonds) finally disclosed the investment information to citizens after withholding the information for a year, they did report that a ‘consensus’ had been reached by the City with the City’s Investment Bank that would totally  secure full recovery of all principal and interest of the invested funds (interest was to be 4.75%). (See pages 13 and 14 of the Agenda for Council’s Finance Committee meeting for July 28, 2008).

 The timing of all investments  establish that the source of funds were the 2007 property tax collections, and amounted to almost one-half of the total collected from all residents and businesses. The July 28 minutes (see page 6 on the City website) "they are fully confident that the restructuring proposal combined with assistance from our investment bank will protect the City’s ABCP investment at maturity, both principle and interest.

The City refused to disclose the name of the Investment Bank although by January of 2009, Mayor Tarleck gave a speech to the local SACPA meeting to state that the banker was National Bank, and that he had been on the telephone that same morning to confirm details of a settlement agreement with the President of the Bank, and it would be announced as soon as the Montreal officials could make travel arrangements to be in Lethbridge for the announcement. (Recording of SACPA meeting from SACPA web site).

Since then, the City officials and Council have refused to acknowledge details of the investments, what current values are ascribed to the ‘replacement notes’ accepted by the City although the information is available from the Investment company Black Rock Canada. A proposed "option" agreement was allegedly signed in November of 2009 with the National Bank that supposedly contains a clause requiring confidentiality, and allows the City to borrow $5.9 Million from National Bank, then default on payments, and then deliver to the Bank certain replacement notes with face value of $7.9 Million (no interest will ever have been paid) thus permitting the City to formalize a loss of principal of $2 Million, and a loss of approximately $1.1 Million in interest on those funds. The City will however monitor the disappearing value of the notes until that time – without ever disclosing any information to the public.

Despite the effort of the City to remove from citizens the right to know what has happened, and what is happening with the money belonging to the citizens, there are some facts that we can state with certainty, and some details that can be properly assumed. What isn’t told by the City follows:

1. First of all, the media and the City continue to name the investment an  "ABCP investment", when in fact it is an investment in "non-bank" Asset Backed Commercial Paper. The actual ABCP investments are alive and well in this country, it is only the curious "non-bank" investments that went haywire. But the City won’t even admit that the investments were made in "trusts" and not in corporations as required in the investment policies. But only "trusts" and not corporations were frozen under the Crawford proposal, so the City is not fooling anyone by hiding the documents.

2. The Investments correlate with the receipt by the City of property taxes for the year 2007, payable by June 30 of each year. The City will not admit the dates and details of the various investments, but they are disclosed completely in a document submitted by the author to City Council in the Agenda for January 11 of 2010 (see page 186 of agenda on City website). (as noted above)

3. The City continues to refuse to disclose the name of investments even when the documents are sought under FOIP legislation, and deletes the name of investments for reasons unknown. (See page 187 of January 11, 2010 agenda). It would appear that the City does not want the public to know that the investments were not within the limits of its own investment policy, which allows commercial paper investments only in Canadian corporations. Trusts are not corporations, as reported by Auditor General Sheila Fraser in her report on the tainted Yukon investments, and the investments therefore were not made in accordance with the investment policy.

DATED: June 12, 2010 

The City of Lethbridge has relied in all respects on the National Bank in making the purchase and following through with all information on the investment and has entered into an option agreement with National Bank, apparently subject to exercise by the City in November of 2011. That proposal apparently allows the City to borrow 5.9 Million dollars from the Bank (a borrowing bylaw already having been passed), and immediately default on any payments of principle or interest, and retire the debt by delivering over 7.9 Million dollars worth of “replacement notes” among the notes received from the agencies handling the investments.

The City has reported that it received notes with a face value of 31 Million dollars upon the national settlement of the non-bank ABCP mess – with maturity sometime in 2017. In the meantime the City chose to report an accounting “write-down” of value on those notes of 5.7 Million dollars, all the while assuring taxpayers that this was an accounting matter and they did not expect to have any final loss of principle or interest. Interest has never  been accounted for in any proper way.

The option agreement is reported to contain a clause that inhibits the City from providing any information to the citizens of Lethbridge (or apparently to anyone else). The City however is required to report all financial dealings to the Province of Alberta, and that includes specific details on investments of funds in the hands of the City from grants – and the City reports that fully one-half of the investment portfolio held by the City – including the grant funds – is derived from grants. The City has refused since July of 2008 to disclose what portions, if any, of the investments in ABCP are from grants or straight taxes – although it is clear that the investment income reported accrued at a higher rate to the City than to the Provincial grant funds which must  be reported separately. That would lead most analysts to assume, since the ABCP produced little or no interest while frozen, that the greater portion of the frozen investment was attributable to the grant accumulations.

The Province has refused to disclose the contents of the reports on grant dispositions, investments and returns, stating that the City is the author of the report and must provide the details.

 In any event, if the City believes in the processes of the National Bank, it should be of interest to all citizens of the treatment the National Bank gives to its evaluation of the tainted non-bank ABCP notes that the bank itself holds. The April 2010 quarterly report, just released, shows that the National Bank holds a total of 1.936 Billion dollars in these notes. The Bank, in its wisdom and with its accounting abilities, has established a fair value of the notes as at the end of April, 2010 at 1.142 Billion dollars, a total write-down of 41% off the face value --- believing that this is the fair value of the holdings. On that basis the City of Lethbridge should be writing down approximately 12 Million dollars, leaving our real value currently at 19 Million, and not the amount that the City insists will be fully recovered at 2017.