Thursday, April 3, 2008

Canadian ABCP Saga: Small Investors Hire Lawyers, Hedge Fund Offers to Buy ABCP and Sue Big Banks.

The Canadian ABCP SAGA took another twist today. Private "small" investors hired Juroviesky and Ricci to stop the big banks from trasforming their short term ABCP into 8 to 9 year term paper. This was the essence of the so-called plan to save the $33B frozen in ABCP that was being proposed by the big financial institutions in Canada, a controversial plan that has hit many road blocks and delays and is yet to be approved.

Small investors decided to fight, and because they greatly outnumber the big banks, they have some clout. Although the big banks control the majority of the funds, there are a total of 1,800 investors affected, so they are the ones in control. These investors bought this ABCP junk paper thinking that they were safe AAA short term vehicles, and are obviously not happy with the big bank "bailout" plan.

Henry Juroviesky, the lawyer from Juroviesky and Ricci, commented today on BNN that the investors have an offer from an American hedge fund that would pay these investors upfront, at a small discount, and then would use its massive Billions of resources to possibly sue the Canadian banks, not only for principal, but for damages too.

Bluff or not? We will soon find out. In any case, the plan as is, is more than dead.

UPDATE: Banks hit back:

"ABCP holders told they're welcome to invite vultures"
Globe and Mail April 3, 2008 at 3:05 PM EDT
"A committee trying to persuade small investors to support a proposal to restructure the frozen $32-billion market for asset-backed commercial paper would not object if they sold their holdings to U.S. vulture funds, a spokesman said Thursday."

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