How the Caisse has fallen

Share

Henri-Paul Rousseau is a towering figure, an overbearing man whose stature as a former banker and head of the mighty Caisse de dépôt et placement du Québec placed him in a class above the average business leaders.

That reputation took a beating this week when Mr. Rousseau appeared before a National Assembly committee and refused to be blamed for the pension fund's record $40-billion loss in 2008.

Gone was the self-assurance and cavalier attitude that marked his appearance before the committee a year earlier when the extent of the crisis at the Caisse was not yet fully known. Instead, he was a man on the defensive, refusing to disclose all the information that could explain what went wrong at the pension fund under his watch.

He admitted it was a mistake to invest more than $13-billion in noxious asset-backed commercial paper or ABCP. But he refused to adequately explain why he didn't heed the early warning signs in July of 2007, when the Caisse continued to invest in risky ABCP well into the next month. "There was a lot of confusion in the market. I think it's the only logical explanation," Mr. Rousseau said.

But confusion doesn't explain the losses on currency hedging, on real estate investments, on the type of speculation that saw Quebeckers' savings being managed no different than those of a hedge fund. Under his leadership, the Caisse's portfolio managers were offered attractive bonuses to take the type of risks that finally led to the pension fund's deep involvement in the ABCP fiasco.

During his appearance, Mr. Rousseau acknowledged that it was a mistake to invest so heavily in ABCP. He also acknowledged that he failed to communicate properly with Quebeckers on what the Caisse was doing. But that's the extent of the blame he was willing to shoulder. "This wasn't only the Caisse's crisis," he said. "It was everybody's crisis."

It is also becoming everybody's pain - everybody's, of course, except Mr. Rousseau's.

Further testimony this week by representatives of the Caisse's depositors indicated there will be a hefty price to be paid for the pension fund's brazen and imprudent behaviour.

For instance the Quebec Construction Commission, which lost $2-billion as part of the Caisse's worst performance in history, told the hearings that 3,000 construction workers who retire this year will receive on average $720 less per year, or a 4-per-cent drop in benefits. Insurance rates may also increase by $50 a year in 2011 to stave off the effects of the province's automobile insurance board losing $2.5-billion. Companies will be paying more to the provincial Workmen's Compensation Board after it saw its funds plunge by over $3-billion.

Meanwhile, all working Quebeckers could be paying more into the Quebec Pension Plan, which lost $9-billion in 2008. There's even talk about raising the minimum age for retirement to 63 from 60.

The Caisse's leaders probably have no idea of the impact its ill-advised strategies will have on average Quebeckers. And by the sound of Mr. Rousseau's testimony this week, they probably don't care much either.

When he left the Caisse, Mr. Rousseau pocketed more that $400,000 as part of his golden handshake for serving the pension fund for more than five years. He made no apologies for making a handsome salary when he became vice-president at Paul Desmarais's Power Corporation in January. He explained to the commission that he made "huge sacrifices" when was appointed to the Caisse in 2002, saying that at the time he even left behind "millions of dollars."

But during this week's hearings, some National Assembly members questioned the ethics behind Mr. Rousseau's decision to negotiate a job with Power Corp. while he was still at the helm of the Caisse. There was nothing to indicate a conflict of interest, but there was enough appearance of conflict to make the situation ethically questionable to the public.

Some also began to question Mr. Rousseau's loyalty to the Caisse after he became so closely identified with Power Corp. The Caisse became less interventionist in the Quebec economy under his tenure. It was also reported that Mr. Rousseau, shortly after taking the reins, attempted to convince the head of Quebecor Media Inc., Pierre-Karl Péladeau to sell his recently acquired cable company Vidéotron Inc. to Toronto's Rogers Cable Inc. Mr. Rousseau's initiative created a conflict with Quebecor, one of Power Corp. major competitors in the media world.

Those who questioned Mr. Rousseau's nationalist credentials were then convinced that he had turned his back on promoting Quebec's social and economic development and instead embraced the promotion of greed and profits among his managers - the type of business culture that permeated many financial institutions before the global meltdown.

And when a book was launched last week to illustrate the change in focus under Mr. Rousseau's leadership, the Caisse threatened a lawsuit and scared the publisher into ordering bookstores to remove the volume from shelves, albeit for only four days.

It was yet another sign of how the once mighty Caisse, a symbol of Quebeckers' entrepreneurial pride, had become a distant and arrogant institution by attacking a basic principle such as freedom of speech in a bid to protect the interests of its money managers rather than show compassion for the interest of Quebeckers who in the end will foot the bill.