Canaccord Capital Inc. has had 13 clients file complaints with the firm regarding asset-backed commercial paper and warned Friday there could be more.
"I guess it is too early to tell what the litigation risk will be, some of that is going to be conditional on damages, but I think it is reasonable to expect there will be additional complaints," chief operating officer Mark Maybank told a conference call with analysts.
"And then we obviously have a moral obligation."
The investment firm said Thursday it earned $12.4-million, or 26 cents per diluted share, on revenue of $154.5-million for the three months ended Sept. 30. That compared with a profit of $17.8-million, or 37 cents per share, on revenue of $156-million a year ago.
Weighing on the results was a $4.4-million charge in principal trading as of Sept. 30 related to the company's asset-backed commercial paper holdings.
The average analyst estimate had been for earnings of 38 cents per share based on three analyst surveyed by Thomson Financial.
Shares in the company came under pressure in trading Friday falling $1.02 or 5.5 per cent to $17.38 in trading on the Toronto Stock Exchange.
In mid-August, the company said its clients held $275-million of ABCP notes in their accounts, while Canaccord held $32-million in cash and cash equivalents and $11-million in its principal trading accounts classified under securities owned.
Canaccord chief executive officer Paul Reynolds said the company's results were below what the firm had hoped for in a period of volatile markets.
"For many in the financial services industry navigating the market stresses of the last quarter was extremely challenging," Mr. Reynolds said.
"A series of market events shook investor and issuer confidence across all of our geographies and led to sharp downturns in equity markets during August."
But Mr. Reynolds said the company has confidence in the underlying asset quality of the asset-backed commercial paper and believed the trusts will be successfully restructured.
The Canadian asset-backed commercial paper market had been viewed as a conservative place for companies to place their funds for short periods. But it ran into a liquidity crisis in August in part because of concerns over the quality of the investments, which had been linked to problems in the subprime mortgage market in the United States.
The problem started when foreign banks refused to buy maturing notes which investors had believed carried buyout guarantees from those institutions.
An original 60-day standstill deadline was extended last month to Dec. 14.
Purdy Crawford, the chairman of an investor committee working to resolve the mess, has said he believes the mess will be cleaned up by Christmas.
The first restructuring was completed last month with a plan that will see note holders of the $2.1-billion Skeena Capital Trust receive their return of capital and interest, "net of certain costs of the proposed restructuring."