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Canada Moves to Bail Out Troubled Bank

March 26, 1985|Associated Press

OTTAWA — The Canadian government has put together a $255-million program to keep afloat Canadian Commercial Bank, based in Edmonton, Alberta.

Minister of State for Finance Barbara McDougall announced the bail-out program Monday, involving the federal and Alberta provincial governments, the Canada Deposit Insurance Corp. and a group of six chartered banks.

Canadian Commercial's portfolio has been deteriorating recently, mainly because of some U.S. loans that have gone sour. Bank officials told the Office of the Inspector General of Banks on March 14 that they could no longer meet their obligations to depositors or creditors.

The refinancing involves the purchase of the bank's non-performing loans to restore the institution's solvency position and guarantee its deposit base.

Another $60 Million

The CDIC will put up $75 million of the funds required. The federal and Alberta governments and the chartered bank group will put in another $60 million each.

In a separate agreement, the federal government together with British Columbia and Alberta will also purchase up to $39 million of the bank's own debts.

McDougall said she is confident that the support will "permit the Canadian Commercial Bank to continue its active and important role in the growing economy of Western Canada."

Canadian Commercial was only the latest in a series of Western financial institutions encountering balance-sheet difficulties, although most of the other troubled firms are small trust companies in difficulty because of high residential mortgages held in a market in which house prices have slipped substantially.

The bail-out repayment conditions call for Canadian Commercial to pay back 50% of its pretax profits until the capital on the refinancing deal is repaid in full. The bank will retain the other half of its pretax profits.

Canadian Commercial will not be allowed to pay any common or preferred share dividends until the repayment program is completed.

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