Quebec Finance Minister Monique Jérôme-Forget says directors at the Caisse de dépôt et placement du Québec didn't fully understand what they were getting into when they believed they could make huge profits on a multibillion-dollar stake in commercial paper.
The board members of Canada's biggest pension fund manager were taken in, along with other investors, by credit ratings that underestimated the risks of asset-backed commercial paper (ABCP), the Finance Minister said.
"Those who sold these products throughout the world … did not know the contents of the commercial paper," Ms. Jérôme-Forget said in the National Assembly.
"Not only did they not know but they relied on credit rating firms who had the mandate to evaluate them. DBRS, for instance, gave commercial paper a triple-A rating while giving Quebec bonds a double-A rating. You can understand that this was a major mistake."
For the second consecutive day, Ms. Jérôme-Forget was in the hot seat in the Quebec legislature, having to explain why the Caisse invested $12.7-billion of Quebeckers' savings in ABCP. The extent of the pension fund's losses in ABCP will be unveiled in its annual report expected at the end of February.
The minister said this week that members of the board of directors at the Caisse were not only "taken in" by overly optimistic ratings but that they didn't understand what they were getting involved in when they approved the investments. The Caisse was a major investor in Coventree Inc., which was the largest creator of the securities that eventually froze.
"I'm not thrilled with what is going on at the Caisse. I'm not very happy that they invested $12.7-billion in commercial papers," she said at a news conference Wednesday. "It is clear that they were fooled by this product, that they didn't understand it. In life when you don't understand something, you'd better try and understand it."
A spokeswoman for DBRS, Caroline Creighton, said the agency is willing to discuss the issue with Ms. Jérôme-Forget.
"DBRS assigns ratings based on the information provided to us," she said in a statement. "We are open and transparent in how we assign our ratings, and we now ask for and publish industry-leading detail and disclosure from issuers. We also now require compliance with our Global Liquidity Standard when assigning ABCP ratings."
Correction
Quebec Finance Minister Monique Jérôme-Forget did not single out the Caisse de dépôt et placement du Québec or its board of directors when she told a press conference that "they [financial institutions]were almost fooled by this product [asset-backed commercial paper.] The minister did not comment about the board's role in making investment decisions concerning ABCP. Incorrect information appeared Friday. The Globe and Mail regrets the error.
Rhéal Séguin
Bertrand Marotte