Additional Provisions Taken For Asset-Backed Commercial Paper
EDMONTON, Feb. 25 /CNW/ - ATB Financial reported third quarter earnings
of $43.1 million for the period ending December 31, 2007 - down 37.74 per cent
from the prior year. This reduction is a result of a $29.3 million provision
for potential losses on third-party asset-backed commercial paper ("ABCP").
ATB's "core" operating results (i.e. excluding the ABCP provision) for the
quarter were $3.2 million higher than the prior year.
"Although the restructuring process under the Montreal Accord continues
to make good progress, with an agreement in principle in place and an
expectation that the restructuring will be substantially complete by March 31,
2008, we have determined that an additional provision against our current ABCP
holdings is required," said Dave Mowat, President and CEO of ATB Financial.
"As the restructuring process evolves, we continue to analyze more details
regarding the expected outcome and other detailed information on which to base
our valuation. This information is not complete, but with what we know, we
have determined that it is prudent to record an additional provision this
quarter of $29.3 million. This increases ATB's total provision from
6.9 per cent of our holdings of impacted ABCP at September 30, 2007 to
10.2 per cent at December 31, 2007.
"Our expectation is that the restructuring will succeed - but the
question is still at what ultimate cost to investors. In December 2007, our
holdings of $91.9 million in Skeena Capital Trust were successfully
restructured with a net write-down of $0.6 million - or 0.69 per cent.
"Notwithstanding the challenge of ABCP, we remain focused on ATB
Financial's key business - and are pleased to report that despite the
additional provision this quarter, we generated net income of $43.1 million,
with both loan and deposit growth exceeding that experienced last year at this
Highlights of ATB Financial's third-quarter results:
(for the complete Third Quarter financial results (quarter ended
December 31, 2007), please visit www.atb.com)
- Net income of $43.1 million, down 37.74 per cent, due to
$29.3 million ABCP provision
- Total assets of $22.9 billion, up 15.67 per cent.
- Net loans of $18.9 billion, up 14.39 per cent.
- Deposits (excluding wholesale deposits) of $17.5 billion, up
8.18 per cent.
- Investor Services assets under administration and management of
$4.0 billion, up 16.8 per cent.
- Operating revenue of $181.4 million, down 6.08 per cent.
- Efficiency ratio (non-interest expenses as a percentage of operating
revenues) decreased to 63.22 per cent from 63.00 per cent, excluding
all ABCP-related provisions.
Personal and Business Financial Services - This line of business saw loan
growth in the third quarter of $528.7 million (or 3.58 per cent), which
compares favorably to growth of $345.3 million (or 2.63 per cent) in the third
quarter last year. Deposit growth of $97.9 million (or 0.67 per cent) was also
up from a decline in the third quarter last year of $56.0 million (or
0.41 per cent).
Operating revenue increased from the third quarter last year by
$14.5 million or 10.59 per cent.
Branch Network - ATB Financial continues to invest in its branch network
throughout the province. At the end of the third quarter, four branches were
under construction in Edmonton, Calgary, Fort McMurray, and Grande Prairie.
ATB Investor Services - ATBIS assets under administration and management
reduced slightly during the quarter to just under $4.0 billion. This decrease
was a result of a general stock market decline. Overall, ATBIS continues to
perform well compared to its peers, with growth of 16.8 per cent in the 2007
calendar year versus industry growth of 6.0 per cent.
During the quarter, ATBIS celebrated its fifth year offering the Compass
Corporate Financial Services - CFS represents three sub-lines of business
- Energy, Commercial, and Food & Forestry. The third quarter saw deposit
growth of $94.7 million (or 4.88 per cent) which compares to the
$121.1 million (or 7.23 per cent) increase in deposits in the third quarter of
the prior year.
Loan balances increased in the third quarter by $159.1 million (or
4.48 per cent), exceeding growth of $136.9 million (or 4.61 per cent) in the
third quarter last year.
Operating revenue of $25.4 million in the third quarter represents an
improvement over operating revenue of $20.5 million generated in the third
quarter of the prior year.
Asset Backed Commercial Paper
As announced on August 24, 2007, ATB held $1.2 billion of third-party- or
non-bank-sponsored asset backed commercial paper ("ABCP") in its corporate
investment portfolio. The Canadian market for third-party-sponsored ABCP
suffered a liquidity disruption in mid-August 2007, following which a group of
financial institutions and other parties agreed, pursuant to the Montreal
Accord (the "Accord"), to a standstill period in respect of ABCP sold by
twenty-three conduit issuers. A Pan-Canadian Investors Committee ("Investors
Committee") was subsequently established to oversee the orderly restructuring
of these instruments during this standstill period. ATB is a signatory to the
Accord, a member of the Investors Committee, and continues to actively support
the restructuring process.
On December 23, 2007, the Investors Committee announced that an agreement
in principle had been reached to restructure the subject ABCP - whereby the
ABCP notes held by ATB and other investors will be exchanged for longer-term
notes that will more closely match the maturity dates of the underlying
assets. Detailed negotiations to finalize the agreement in principle are
underway. The final agreement is subject to the approval of investors and
various other parties. The Investors Committee currently anticipates that the
restructuring will be substantially completed by March 31, 2008.
As of December 31, 2007, ATB held a variety of investments in ABCP
totaling $1.1 billion. Of these holdings, investments in eleven conduits
amounting to $1.0 billion are subject to the Montreal Accord (September 30,
2007: $1.1 billion). ATB's investment of $91.9 million in ABCP notes issued by
Skeena Capital Trust was successfully restructured in December 2007. ATB
received a combination of cash and a long-term floating-rate note issued by a
successor trust in exchange for its holdings in Skeena Capital Trust, and
recognized a net loss of $0.6 million from this restructuring.
In the absence of an active market for third-party-sponsored ABCP during
the standstill period, ATB has estimated the fair value of these assets as at
December 31, 2007 using an internal valuation model. The valuation model
incorporates management's updated best estimates of credit risk attributable
to underlying assets, the net discounted cash flows ATB expects to earn from
those assets, the relevant market discount rate for such investments, and
assumptions regarding the likelihood that the restructuring process will
proceed as outlined by the Investors Committee. ATB had recorded a
$77.6 million provision for losses (together with a $2.0 million provision for
expected restructuring costs) as at September 30, 2007, reflecting our then
best estimate of the reduction in the fair value of these investments as at
that date. ATB has since updated its valuation model to reflect its
understanding of additional details of the restructuring agreement in
principle together with updated asset- and market-related information. As at
December 31, 2007, ATB has recognized an additional provision of $29.3 million
to reflect our best estimate of the fair value of these assets. This brings
the total cumulative provision to $106.3 million (or 10.2 per cent of our
impacted holdings, including accrued interest).
It must be emphasized that ATB's estimate of the fair value of the
third-party-sponsored ABCP investments as at December 31, 2007 is subject to
significant uncertainty, especially with regards to critical assumptions
underlying our valuation model. The eventual resolution of these uncertainties
could be such that the ultimate fair value of these investments may vary
significantly from management's current best estimate and the magnitude of any
such difference could be material to our financial results.
To ensure ATB maintained its strong liquidity position following the ABCP
market disruption, additional investments were promptly made in other liquid
assets, funded through the issuance of short- and mid-term notes. We have
continued to maintain our strong liquidity position. The liquidity disruption
in the Canadian market for third-party-sponsored ABCP has had no other
significant impact on ATB's operations or financial position. Under the
current restructuring proposal, ATB's holdings in eleven conduits will be
combined into three new investments and the magnitude of one investment would
exceed ATB's current regulatory limits. ATB is currently working with the
Government of Alberta to resolve this matter.
ATB in the Community
The ATB Financial United Way Campaign is an annual province-wide
fundraising initiative and supports the ten United Way regional agencies
across Alberta. Once again, associates came together to raise money through a
number of activities and their own generous donations. Those efforts, combined
with the 50 per cent corporate matching program, resulted in donations of over
In December, Edmonton and area associates organized a number of
activities to support the Christmas Bureau. The Christmas Bureau is Edmonton's
longest serving not-for-profit organization and provides a meal and gifts for
those in the community that would not otherwise be able to celebrate the
holiday season. This year ATB associates were able to raise over $47,000.
ATB's associate volunteer program, Community Stars, was established to
recognize our associates who are actively involved as volunteers in their
community. ATB makes a $200 donation to the not-for-profit organizations that
are important to our associates. During the third quarter, cheques were
provided on behalf of 45 associates.
Third Quarter - Economic Review & Outlook
Half way through the first quarter of 2008, Alberta's economy remains
healthy. Nonetheless, the risks associated with a slowing North American
economy have heightened and are tempering growth expectations in Alberta.
Since last quarter, economic and financial conditions in the US have
deteriorated markedly. On January 22, 2007 - a full week prior to its expected
announcement date - the US Federal Reserve reduced its trend-setting "fed
funds" rate by 75 basis points to 3.50 per cent; it reduced the rate by
another 50 basis points the following week to 3.0 per cent. These cuts were
made in response to the significant write-downs and associated losses at
financial institutions, the extreme volatility in the stock markets, and the
concern of a looming recession in the US. The Bank of Canada also lowered its
overnight lending rate by 25 basis points to 4.00 per cent on January 22,
The major story of the fourth quarter of 2007 was the rise in value of
the Canadian dollar. Since falling back from its high point in November, the
dollar has stabilized and remains close to parity. Sales of gas, beef, forest
products, crude oil, and tourism services continue to be negatively impacted
by the higher Canadian dollar.
ATB Financial's Business Sentiments Index(TM) ("BSI") for the first
quarter of 2008 stands at 124.7. This is down noticeably from a level of 149.7
in Q1 2006 and 140.2 in Q1 2007. In this latest survey, the BSI for Northern
Alberta was 130.0, compared with 119.0 for Southern Alberta. This regional
spread continues a pattern that first became evident last summer.
Despite these setbacks, Alberta's economy is still healthy. Housing
prices in Edmonton and Calgary - which had been declining in the fall - appear
to have stabilized in January. Inflation was 3.6 per cent in January, and the
most recent employment figures show that the labour market remains very tight.
It is still expected that Alberta's real GDP will be among the fastest growing
in the country in 2008, with growth in the range of 3.0 to 3.5 per cent.
About ATB Financial
ATB Financial is the largest Alberta-based financial institution in
Canada with assets of $22.9 billion that provides Personal and Business
Financial Services, Investor Services, and Corporate Financial Services. ATB
Financial serves more than 600,000 Albertans in 244 communities through 157
branches and 134 agencies. Services are also available through a Customer
Contact Centre, Automated Banking Machines, Internet and telephone. ATB
Financial was established in 1938 and is a provincial Crown corporation since
1997. For further information about ATB Financial, visit www.atb.com.
Caution Regarding Forward Looking Statements
This report may include forward-looking statements. ATB Financial from
time to time may make forward-looking statements in other written or verbal
communications. These statements may involve, but are not limited to, comments
relating to ATB's objectives or targets for the short and medium term, our
strategies or actions planned to achieve those objectives, targeted and
expected financial results and the outlook for our operations or the Alberta
economy. Forward-looking statements typically use the words "anticipate",
"believe", "estimate", "expect", "intend", "may", "plan" or other similar
expressions or future or conditional verbs such as "could", "should", "would"
By their very nature, forward-looking statements require ATB's management
to make numerous assumptions and are subject to inherent risks and
uncertainties, both general and specific. A number of factors could cause
actual future results, conditions, actions or events to differ materially from
the targets, expectations, estimates or intentions expressed in the
forward-looking statements. Such factors include, but are not limited to:
changes in our legislative or regulatory environment; changes in ATB's
markets; technological changes; changes in general economic conditions,
including fluctuations in interest rates, currency values and liquidity
conditions; and other developments, including the degree to which ATB
anticipates and successfully manages the risks implied by such factors.
ATB cautions readers that the aforementioned list is not exhaustive.
Anyone reading and relying on forward-looking statements should carefully
consider these and other factors that could potentially have an adverse affect
on ATB's future results, as there is a significant risk that forward-looking
statements will not prove to be accurate.
Readers should not place undue reliance on forward-looking statements as
actual results may differ materially from plans, objectives and expectations.
ATB does not undertake to update any forward-looking statement contained in
For further information:
For further information: Peggy Garritty, Vice President, Corporate
Communications and Stakeholder Relations, ATB Financial, (780) 408-7307,