Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Bank of Canada Governor Mark Carney leaves following a news conference in Ottawa November 26, 2012. Mr. Carney will take over the reins as Governor of the Bank of England next year, British finance minister George Osborne told parliament on Monday, announcing a surprise choice to replace outgoing Bank of England Governor Mervyn King. (Chris Wattie/Reuters)

Bank of Canada Governor Mark Carney leaves following a news conference in Ottawa November 26, 2012. Mr. Carney will take over the reins as Governor of the Bank of England next year, British finance minister George Osborne told parliament on Monday, announcing a surprise choice to replace outgoing Bank of England Governor Mervyn King.

(Chris Wattie/Reuters)

How Mark Carney became a star player in a global financial arena Add to ...

But Mr. Carney fought off the critics. Petrocan’s stock price rose during the marketing period, and the government eventually sold its shares for $64.50 apiece, which was at least $5 more than what investment banks would have paid in a bought deal. “It turned out to be the most successful sale of its kind, ever,” Mr. Goodale said in an interview. “Mark had his heels dug in, and he proved to be right.”

THE CRISIS HITS HOME

Canada’s financial system weathered the meltdown of 2007-08 better than most. But it was far from untouched.

In the summer of 2007, the market for a short-term investment product called Canadian asset-backed commercial paper, or ABCP, suddenly dried up when new investors refused to buy maturing paper from other investors. Compounding the problem, the derivatives trades underlying the investments were threatening to go bad amid the stress in credit markets. The potential losses were in the tens of billions unless a restructuring was agreed upon.

During the financial crisis, investors lost access to cash invested in about $35-billion of ABCP. It took a protracted set of negotiations to save those investors from immense losses, and Mr. Carney played the closer in the final talks.

Negotiators among the various parties took the deal as far as they could over 16 arduous months. As the end of 2008 approached, they were within sight of resolution but at a loss as to how to agree on the final points. At that point, Mr. Carney stepped in and rammed the deal home.

In Ottawa, he played a role in convincing the federal Finance Minister Jim Flaherty that the government should provide a financial guarantee that helped seal the deal, arguing that there was not much risk it would be tapped. Mr. Flaherty had been opposed to stepping in, but in the end, he did.

Mr. Carney has so far been right. The federal government has not had to put forward any cash.

He also got on the phone to the foreign banks who needed to agree to restructure the derivatives trades, reaching far above the executives who had been negotiating the deal to talk directly to those at the top, such as then-Deutsche Bank CEO Josef Ackermann. After talking with Mr. Carney, and seeing the support from the government, banks that had been recalcitrant fell into line and the deal was wrapped up.

Relieved ABCP investors started to get their money back a few months later.

It was not the first time Mr. Carney’s expertise in financial markets was deployed on a tricky file for Mr. Flaherty.

After markets closed on Oct. 31, 2006, the Finance Minister announced an end to the income trust bonanza, saying a move by large corporations such as BCE Inc. to the tax-minimizing structure was distorting the economy.

The so-called “Halloween surprise” was extremely controversial, particularly since it broke an election campaign pledge by the Conservatives. Behind the scenes, Mr. Carney was one of a small group of senior Finance officials who advised Mr. Flaherty – and he’s widely viewed as having played a key role in getting the Harper government to move.

“Clearly [Carney] had a strong view and was able to persuade the Finance Minister and the PM to reverse ground, which they haven’t done much of,” said former Liberal finance minister John Manley, now head of the Canadian Council of Chief Executives. “I think he had to be an activist on it.”

Whether Mr. Carney’s advice stood out from his colleagues is unclear. “Nothing is a one-man show in finance,” said Rob Wright, deputy minister at Finance from 2006 until his retirement in July, 2009. “As public servants we provide advice and support. The driver on income trusts was Jim Flaherty. He was well supported by the government.”

A DARING INTEREST RATE MOVE

Mr. Carney was a different kind of central banker.

Single page

Follow us on Twitter: @CarmichaelKevin, @SeanSilcoff, @boyderman

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories