Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 2 - Evidence
OTTAWA, Wednesday, March 24, 2010
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:15 p.m. to examine the present state of the domestic and international financial system.
Senator Michael A. Meighen (Chair) in the chair.
[English]
The Chair: Honourable senators, I call the meeting of the Standing Senate Committee on Banking, Trade and Commerce to order. This is our first meeting since Parliament resumed. Welcome, senators. Senator Kochhar is the newest member of the committee, and I see that Senator St. Germain is back for another tour of duty.
Senator St. Germain: I was here 17 years ago and am happy to be back under the able leadership of the chair, Senator Meighen, and the Deputy Chair, Senator Hervieux-Payette.
The Chair: Thank you. I will pass on your good wishes and compliments to Senator Hervieux-Payette.
I turn now to welcoming our witnesses.
[Translation]
Honourable senators, this afternoon we will consider the present state of the domestic and international financial system.
[English]
Our first witnesses today are from the Business Development Bank of Canada. The BDC will discuss its views of and response to the global economic and financial crisis.
By way of context, as part of the federal response to the global financial and economic crisis, the government made a commitment to provide, and I presume it did so, $350 million in capital to BDC and increased the corporation's credit capacity by $1.5 billion. No doubt our witnesses will elaborate on these measures during their testimony.
We will hear testimony from Edmée Métivier, Executive Vice-President, Financing and Consulting; Peter Lawler, Senior Vice-President, Operations Ontario; and Glenn Egan, Vice-President, (ICT), Venture Capital.
Since acronyms are always a challenge, what does ICT stand for?
Glenn Egan, Vice-President, ICT, Venture Capital: It stands for Information and Communications Technologies.
The Chair: Thank you.
[Translation]
Ms. Métivier, welcome. If you have an opening statement, you have the floor.
[English]
Edmée Métivier, Executive Vice-President, Financing and Consulting, Business Development Bank of Canada: Thank you, Mr. Chair and members of the committee. It is our pleasure to report back to you on the last year. I will give a statement, and then we will be happy to take your questions.
It is my understanding that you would like to hear about what the Business Development Bank of Canada, the BDC, has done over the past year. The past 12 months have been difficult for Canada's entrepreneurs, and BDC has responded by increasing its support to record levels. We have been fulfilling our mandate by stepping up and filling an important gap left in the credit market during the financial crisis. As acknowledged in a recent report from the Conference Board of Canada, we have acted as a shock absorber for the Canadian economy during these difficult times.
I will talk about our progress over the last year and the challenges we faced and continue to face, and I will touch on what we see as the role of the bank for the next 12 months and beyond.
[Translation]
To start, though, a quick description of BDC: We have 1,800 people supporting entrepreneurs from 100 business centres across Canada. We are a complementary lender — which means our lending is designed to complement that of private-sector banks. We offer our support in different forms: financing, venture capital and consulting services. We support 28,000 entrepreneurs in Canada.
I will start my description with our term lending, which is the bulk of our business.
We have a higher risk appetite than do private-sector banks, which is one of the ways we complement the private sector. Our lending portfolio is over $12 billion.
Our clients, 28,000 Canadian businesses, generate about $160 billion in sales, including about $22 billion in export sales.
While our business centre network is modest compared to the 6,000-plus branches of Canada's six big banks, our 600 account managers speak to thousands of entrepreneurs every month. This constant contact gives us the pulse of the market and the daily realities of Canada's entrepreneurs.
Another way we stay in touch with entrepreneurs is through regular surveys.
Our latest survey of entrepreneurs and professionals shows that only one-third of them, 34 per cent, feel the economic recession is over. And, although economic indicators seem to reveal that the recession is ending, more than half of respondents, 53 per cent, think the opposite. This leads us to believe that, even though the recovery has taken hold, many businesses continue to feel the effects of the recession. What is encouraging, however, is that the great majority of them, 86 per cent, aim to increase their revenues and profits in 2010 and 83 per cent intend to grow their business.
More than half, 59 per cent, plan to increase marketing activities this year, and 57 per cent plan to develop new products or services. These statistics are promising.
[English]
While credit conditions were tight for many entrepreneurs during the past year, especially in the manufacturing sector, BDC's financing and securitization services increased and produced record results. We lent Canadian businesses more money over the last year than at any point in time in our 65-year history.
In the first nine months of fiscal 2010, we posted a record $3.4 billion in loan acceptances; that is a 51 per cent increase over the same period last year. Transactions under the federal government's Business Credit Availability Program, BCAP, were a key factor in these results.
The "P" in BCAP is more accurately understood as "partnership" — a partnership for a purpose, which was to support creditworthy businesses whose access to financing could have been jeopardized during the recession.
BCAP is a collective effort among Canada's financial institutions, Export Development Canada and us. Created in January 2009, its goal was to ensure that at least $5 billion of incremental financing was available for Canadian businesses. That number has now been surpassed.
Under our participation in BCAP, our goal is manyfold. We participated in syndicates, replacing departing lenders; we shared with financial institutions an increasing number of commercial transactions on a 50-50 basis; we bought participation in commercial mortgages; and we instituted the Operating Line of Credit Guarantee program.
For the first nine months of fiscal 2010, our financing portfolio reached $12.2 billion, an increase of 16 per cent since the end of last fiscal year on March 31, 2009.
Also, during the past 12 months we provided liquidity to the equipment, car loan and lease financing market by managing the Canadian Secured Credit Facility, CSCF. This $12-billion facility was created in January 2009 through the federal budget as part of Canada's Economic Action Plan. The CSCF stimulated economic activity in the country by supporting sales of vehicles and equipment through the purchase of term asset-backed securities, ABS. The program also promoted renewed investor participation and confidence in the Canadian term ABS market and, more broadly, in vehicle and equipment financing.
In September, we announced that the funds left over in the CSCF would be offered on a first-come, first-served basis until the program expires on March 31, 2010. Since September, we purchased securities totalling $1.65 billion.
In another area of activity, clients accepted close to 50 subordinate financing transactions, totalling $36.2 million for the first nine months of fiscal 2010, an increase of 22 per cent over the previous year. Our subordinate financing activity is defined as higher-risk lending and/or quasi-equities.
Our consulting services were slightly down compared to last year for the same period, reflecting tight spending controls by entrepreneurs during the economic slowdown. Nevertheless, we received 1,773 consulting mandates in the first nine months of the year, which is better than we anticipated at the beginning of this fiscal year.
Our consulting services reflect our desire to create long-term capacity building relationships with entrepreneurs. We take the "D" in BDC very seriously. "D" stands for "development." We care about the long-term success of Canada's entrepreneurs, which is why we offer quality consulting services at rates they can afford.
While the economy looks to be recovering, the business environment is still fragile and uneven. The challenges that BDC has faced over the last year reflect larger concerns in the Canadian economy, particularly when it comes to venture capital financing.
In Canada's high-tech sector, by which I mean the sector in which entrepreneurs bring to market successful companies' innovations created by Canada's research and development investments, things continue to be very difficult. As a nation, we have made impressive public investments in R & D, but we have yet to see this investment trigger a sufficient creation of globally successful technology companies such as Research in Motion. We must do a better job of commercializing and fostering a greater commercial focus for our R & D.
The government's role in helping catalyze these changes is as crucial as its support for the original R & D. I believe that fixing this industry will take money, patience, expertise and the combined efforts of legislators, policy-makers and practitioners. BDC welcomes any opportunity to help, and we are doing what we can.
Total investments authorized during the first nine months of fiscal 2010 totalled $55 million. That is almost $7 million higher than last year, which is the best we could do under the circumstances. In times of recession, there are fewer promising opportunities in the marketplace due to a shortage of capital, both from individual companies as well as from venture capital firms.
In January, BDC received $75 million of venture capital funds via the 2008 federal budget. This money will be invested in Tandem, a new $300-million, privately run, late-stage venture capital fund that closed during the third quarter of this fiscal year.
To conclude, we want to stress that many Canadian businesses have been and continue to be impacted by the credit tightening that we experienced in 2008 and 2009. We have filled and will work in partnership with financial institutions to continue to fill gaps in the credit market by increasing our activities, launching new initiatives if needed and continuing to study and research any way we can to support this country's entrepreneurs.
In the new federal budget, the federal government recognized the need to continue with the BCAP partnership. We are well positioned to continue lending to creditworthy businesses, and we are working very hard to provide direct and indirect support to them. We firmly believe that we have been and continue to be a sound and useful policy instrument and source of market intelligence on entrepreneurship in Canada.
I hope that my report on BDC's business is useful. My colleagues and I would be pleased to open the session for questions. I want to thank you for your attention.
The Chair: Thank you, Ms. Métivier. I have a list of questioners. With your indulgence, I will abuse my position by asking you a question. You mentioned that BCAP had an injection of funds in the 2008 budget. Do any of these programs you mentioned have sunset provisions in any way?
Ms. Métivier: The BCAP was coined a program, but in essence it is a partnership. We were provided with equity in Budget 2008: $350 million, of which $250 million was for the normal lending activities of BDC, and $100 million was earmarked for the guarantee program. The guarantee program has a sunset. I believe it is in 24 months from now. All the others, of the $250 million, have been to support the lending activity.
There is no sunset because it is a partnership, as long as it is market-driven. For instance, if a financial institution finds itself looking at a transaction or looking at a company and wants to share the risk, particularly on the term financing, it will give us a call and we will look at the transaction together. It will continue to be market-driven because it is by invitation in some cases, and it is a partnership with the financial institution.
Regarding the $250 million that was given to us in equity, normally we use a ratio of close to 10 to 1 to be able to do business with it. As of the end of February, under the BCAP, after 12 months, we have put in the marketplace $2.6 billion in lending to different businesses in Canada. A good portion of that was done in partnership with all financial institutions in Canada.
Senator Harb: Thank you very much for your presentation and for the good work you are doing.
In your speech, you were frank and upfront in your comment indicating that there are challenges in the high-tech sector. You outlined those challenges, such as the fact there is not enough venture capital, not enough entrepreneurs bringing forward to the table meaningful things that can propel those companies, and so on. You said that you welcome any opportunity to help, and you are doing what you can.
What specifically have you done to try to get the ball rolling? You have received some money from the federal government. Within your mandate, you have quite a bit of leeway. You know venture capital in Canada is pathetic. In fact, many entrepreneurs and people who come to this country leave shaking their heads about the lack of venture capital funds.
I do not understand why. I need someone intelligent like you, with the required leadership skills, to bring those stakeholders together, sit them at a table and try to stop pointing fingers and try making recommendations for someone or some entity to get the ball rolling. Who would that entity be if not you?
Ms. Métivier: It is a fair question. I will take the overall question and then ask my colleague, Mr. Egan, to answer more specifically about that specific market.
The state of venture capital is not new; it has been there since, as you know, probably early 2000, right after the technology bubble. It has been getting worse and worse with the years, and the recession has not helped.
Having said this, BDC has done a number of things over the years to ensure there is a venture capital business in Canada. We have invested directly in many companies over the years. Mr. Egan can give you details on that.
We also invest in other funds. We do not necessarily invest in the company directly. We sometimes do so indirectly for other fund managers to be able to invest with us. If you are the only player in town, however, it is difficult at the end of the day.
Third, last year, we created Tandem, the fund I referred to. It is a late-stage fund in which we have other partners with us, for a total amount of about $300 million.
There are many things that BDC can do. However, it cannot support an industry all by itself. Perhaps Mr. Egan wants to add to that.
Mr. Egan: Venture capital funds get their money from a variety of sources. Government is one of them, and government is currently the most important and most active. We like to look at the U.S. venture capital market, which is the healthiest, most robust market in the world. In it, the bulk of the money comes from pension funds, where a pension fund with several billion dollars will allocate a small percentage to this asset class.
They do that because the venture capital industry in the U.S. is several generations older than it is in Canada. We currently co-invest with funds in Silicon Valley, in Boston, that have had eight, ten or twelve funds that have been going over a quarter of a century. The pension funds there are quite familiar and comfortable with that asset class and go back again and again to the tier 1 brand name funds.
We simply do not have the history or the mature managers of funds in Canada yet to attract money from the pension funds to this asset class.
Another source of capital for venture capital funds was individuals, and at one point the labour-sponsored funds in Ontario contributed 40 per cent of all of the venture capital funds available for high-tech companies in Ontario. As you know, the tax benefit to the individual in investing in labour-sponsored funds was removed, so that industry has effectively collapsed. We are watching the last few years of those funds peter out.
Not only is that capital missing to invest in new companies, but even worse is that the capital support for the companies that we started five, six, seven or eight years ago has disappeared, pushing the hundreds of companies we got started over the finish line. The burden of that now falls to the fewer and fewer venture funds that do exist.
The last source of venture capital is strategic investors. That requires large, healthy organizations that specifically allocate a little bit of money in order to get insights into the new start-ups. The U.S. has many of those large global organizations, and Canada has few. We need to attract U.S. strategic investors up to Canada to invest. Unfortunately, when there is an economic recession, those corporations typically say, "Please pull in the reins on your strategic capital investment."
Canada has been hit by this series of negative issues. The labour-sponsored funds can no longer effectively raise capital to support the industry. The pension funds have determined, maybe rightly, based on our maturity, that this asset class is not worthy of the risk return to invest in Canadian early-stage managers, and the strategic investors have pulled back because of the economic crisis. We have a bit of a perfect storm.
What is BDC doing about it? BDC has a dual strategy, where we are a limited partner currently in 20 venture capital funds, and we are a direct investor in over 150 companies.
Let me talk about our role as an indirect investor. I like to think of a new venture capital fund almost like a mall. You need to have an anchor tenant, a Sears or a Canadian Tire at each end of the mall. Then you can fill up the shops in the middle. BDC has been remarkably effective as the anchor limited partner in getting a lot of these funds going. Tandem, the only late-stage fund in Canada, would not have happened had BDC not taken the investment from our shareholder and become the anchor tenant in that fund. We have done that now 20 times.
That is a difficult job. We need co-investors in a fund, the same way as a direct investor. We need co-investors in a company. Unfortunately, the market is currently extremely difficult. Literally, fewer than a handful of limited partners are willing to invest in Canadian funds.
I do not think it is doom and gloom, but we need to be patient. BDC is leading the charge in the capitalization of new venture capital funds and supporting emerging and repeat managers. It is not a quick job.
Senator Harb: Is it conceivable, for example, to have a meeting of stakeholders — and you talked about that — to bring players to the table to explore possibilities?
You mentioned pension funds. The chair and the government are interested in looking at the notion of pensions. For example, there are billions of dollars in individual RRSPs. There are limitations for people with RRSPs to invest them in their own companies. Should there be a mechanism to allow those individuals to take whatever amount they want from their RRSPs to take the risk on their own companies to invest the money in them?
There are different ways to approach this issue. We all agree there is a problem. It is not new; we have been hearing about the problem for years, but we do not seem to find a way out of it.
You seem to know exactly what is happening. I am glad you mentioned an anchor, because it often requires someone to be first. Many people will ask who else is involved. No one wants to be first. To take the risk to be first is good, but you may want to do something to bring in others to be second.
Mr. Egan: Last year, we spent a lot of time thinking about what we could do. We took the initiative to host a series of round tables across the country. We invited limited partners, managers, CEOs of venture-backed companies and many stakeholders into private sessions that we ran coast to coast with facilitators. Our CEO, senior management and the venture capital team attended them, and we collected information and insights from brainstorming sessions that discussed what is right and wrong. We assembled that information and have drafted — I do not think we have released it yet — a summary of those recommendations coupled with the impact of what happened in the last year. Since those round tables took place, things have changed and venture capital has gotten worse. We have a proposal, which I believe will be published relatively soon.
Senator Gerstein: Clearly, your organization, BDC, along with Export Development Canada, EDC, and Farm Credit Canada, FCC, has played a major role in the economic action plan established last year. I compliment you and your colleagues.
Ms. Métivier, in your opening comments, on page 2, you said that BDC is a complementary lender, which means that your lending is designed to complement that of private sector banks. On page 4, you indicated that in the first nine months of this year you posted a record $3.4 billion in loan acceptances, which is a 51 per cent increase over the same period last year.
Ms. Métivier: That is correct.
Senator Gerstein: How did your criteria for credit granting differ this year from previous years? How did they differ from those used by banks? What change in delinquency do you expect as a result of what you have processed in this current year?
Ms. Métivier: These are all good questions.
Perhaps I can talk about what complementarity is, because it is in BDC's act. We have to look at complementarity from the eyes of the entrepreneur first. If I am an entrepreneur in the marketplace, I have a project. BDC is mostly a project lender. If you want financing from BDC, it is normally because you have an expansion project, a new product on the market, a new market or you want to do something different with your company.
Senator Gerstein: Are you saying that is distinct from providing operating capital or lines?
Ms. Métivier: Yes, it is.
Senator Gerstein: You do provide operating lines, though.
Ms. Métivier: No, we do not. We differ from financial institutions in that we are a term lender for anything over a three-year term, on average. We are also a long-term lender.
Let me backtrack. Every single client or business at BDC has another financial institution. That is also how we play our complementarity. Our 28,000 business clients at BDC are also clients with another financial institution because they need deposit and operating facilities. They usually come to BDC because either they have a project or they require working capital for longer-term projects. That is normally how we are approached. Every single client is a joint client with another financial institution.
If I am an entrepreneur, I go to the market for term financing. BDC differs in that our appetite for risk, for terms and for flexibility in repayment is higher. We tend to be flexible in the way we ask for payment. If you are a cyclical business and have revenues only in eight months out of 12, we will adapt your payment schedule to your revenue streams.
You asked whether we changed our credit requirements last year. We did not. Why? It is simply because one has to understand that the credit or liquidity crisis in the market place in 2008 was exacerbated by the fact that many foreign lenders disappeared. They all left Canada, and that left a void in Canada; hence, BCAP was created to try to ensure we would fill that gap.
Financial institutions were continuing to lend, although, to some degree, they were maybe more cautious because a recession was underway. At the same time, the role of BDC was to ensure that credit continued to be available for Canadian businesses. Therefore, we did not change our credit requirement.
I cannot speak for financial institutions because I am not privy to their credit requirements. However, in many cases, when a financial institution could not or would not help a company, it would call BDC and ask us to look at the company's credit requirement.
Normally, the activities of BDC decrease in a recession. In the absence of a credit crunch or a liquidity crisis, activity at BDC would decrease because we are a project lender, and an entrepreneur is not likely to invest in a project during a recession. Entrepreneurs will preserve working capital for the operations of the company rather than extend the plant or try a new market. They are more cautious about investing.
The difference in this recession was that there was a gap in the marketplace because a lot of non-Canadian-based financial institutions actually disappeared. BDC's activity increased in large part because we were working in partnership with financial institutions in many cases.
Regarding your final question about delinquency, I want to discuss the kind of risk that we take. An impaired portfolio is one where a company cannot even pay its interest. A company is going into such a difficult period that it cannot pay its capital or its interest either.
The impaired portfolio at BDC went from 2.9 per cent to about 4.5 per cent in one year. You could see the stress in Canadian companies simply by the increase in our impaired portfolios. This year, we will probably end up with a provision for bad debts that will be double, if not slightly over, what it was last year. We have been able to absorb part of the shock left in the market place.
Senator Gerstein: I appreciate that explanation. For the term loans that you provide, in most cases is the operating line that a company might receive conditional on your giving a term loan, or are they distinct?
Ms. Métivier: They are distinct. If a company is short on working capital, we will ensure it has an operating facility. There are two separate transactions: one with the financial institution and one with BDC. It depends on the situation. Yes, in some cases we want to ensure that the company has a working capital operating facility.
The Chair: Ms. Métivier, if you think the company and the project are worthy and you want to back the company, would you go so far as to hold the company's hand and take it to one of the big six banks?
Ms. Métivier: Yes. We refer clients to financial institutions and vice versa.
Senator Greene: I would like to pick up the thread of Senator Gerstein's questions. Ms. Métivier, you mentioned that your credit requirements have remained the same and have not been altered and that your bad debts are double.
Ms. Métivier: Bad debts have increased.
Senator Greene: You have about 28,000 clients. During the recession, has the percentage changed of applicants accepted by the BDC versus those that are turned down?
Ms. Métivier: That is a fair question. I would say that in some cases, we saw a slight increase because there were referrals that we did not consider creditworthy.
Senator Greene: Was the increase in applicants turned down?
Ms. Métivier: Yes. Sometimes a financial institution wanted us to look at a transaction that we did not consider creditworthy. Most of the time, it was relatively stable.
Senator Greene: With regard to the recession, what would be two or three of the biggest contributions you have made to the state of creditworthiness in Canada and to help with the credit problems of companies? I am not looking for the names of companies, but could you provide a couple of examples to demonstrate the importance of your work?
Ms. Métivier: I will answer with a general statement, and Mr. Lawler will provide a couple of examples.
You asked what we are most proud of about last year. At BDC we are extremely proud of a number of things: First, as an organization, we have been able to shore up quickly the level of activity of the bank from $3 billion in 2009 to over $4 billion in financing activity this year. Second, putting together the CSCF is also high on our list of accomplishments because we did not have the experience or the expertise to do that. We were able to put this program in place and disburse from it as required.
Third is our continuing activity in venture capital, given that there were not many players around. We did that through our employees at BDC. I want to recognize that. Fourth, we have been able to support sectors, such as automotive, that were going through a very difficult period. We did not abandon any sector during the recession.
Peter Lawler, Senior Vice-President, Operations Ontario, Business Development Bank of Canada: I will provide examples of the impact BDC has had on a couple of industries. The first one is in the automotive industry, of which I am the senior vice-president for Ontario. It is important to the Ontario economy. An auto parts manufacturer, in the depths of the difficulties of the auto parts industry, found that their U.S.-based lender suddenly exited the market. It was a very good company with 1,000 employees in Southern Ontario. It suddenly found that a project it needed to complete could not be done. BDC helped the company complete the project by providing term financing and helping to find a domestic lender that would take on the company's operating facilities. I had the pleasure of visiting that company recently, and it is doing exceptionally well today.
Another example is a technology company in the Toronto area that was expanding and adding employees. Suddenly its lender was unable to complete the project. The company was in the middle of building a new head office facility for its 350 employees. BDC was able to provide the financing where a traditional lender could not do it because of the terms and conditions that the company required.
There are many such examples from the last year. From an Ontario perspective, BDC's activities are up 49 per cent in terms of the money lent in the Ontario market to the end of February 2010. Those are two succinct examples of the impact BDC has had on industry.
Senator St. Germain: Is there a sectoral breakdown? Mr. Lawler, you mentioned the automotive industry. Are there specific sectors? Do you have a sectoral breakdown of where the delinquencies occur or are more prevalent? I am from British Columbia, and I wonder whether you have any information on the forest sector.
Ms. Métivier: That is a good question, but I am not able to provide you with the details of a specific industry. BDC is in all sectors, including forestry. This past year, we made a number of new transactions in the forest sector, but I cannot tell you whether the impaired loan in forestry at BDC is higher than the average.
Our portfolio is heavily weighted toward manufacturing in Canada. As you know, the manufacturing sector has been in transition for the last two to three years because it has been under competitive forces from outside Canada.
We are also heavily weighted to tourism in times of recession, which would be in your area. In B.C., we have a large portfolio in tourism because it is long term.
We have a number of different companies across Canada in transportation. Transportation is an interesting sector because it is a lead indicator, which means it starts the recession before everyone else and normally indicates whether the economy is recovering.
We have been following transportation very closely because we are starting to see signs that shipments are moving, which is good. It means our manufacturers are producing and their goods are being moved to the market where they will be sold. That is a good indication.
We have all kinds of other sectors at the moment. I cannot answer your question by sector at this time, but we can come back to you with that if you wish.
Senator St. Germain: Do you do any work in the real estate area by way of projects? Because when the 2008 scenario hit us, it really hit that sector.
Ms. Métivier: Yes.
Senator St. Germain: The banks were withdrawing; the big six were heading for the hills. They had made arrangements that traditionally had been handshake agreements with major developers, and they just ran from them. If they did come back, they came back with such ridiculous requests for administration costs and various other related costs that it really increased the cost of financing for those projects.
Do you do any projects in the real estate sector?
Ms. Métivier: Real estate is our bread and butter. We support a large portfolio of real estate, mostly commercial mortgages. We will not do retail development. For instance, we will not finance the development of condominiums or the like. We usually will finance commercial real estate. The building has to be for commercial purpose.
We saw a large increase in commercial lending last year simply because term lenders were not interested in long-term financing. These are 20-, 25-, 30-year commercial mortgages. We have been working with financial institutions for commercial mortgages, and it is the bulk of our support. A lot of our support went into that category.
Senator St. Germain: Do you have a limit on what you can invest in a real estate project? The Conference Board of Canada has given you A-pluses. Will you continue in the mode you are in now, and for how long? Will you revert back to what you were before? At what stage will you do that, or do you know?
Ms. Métivier: My wish would be that we continue to work in partnership with financial institutions. We have been able to work with financial institutions in larger transactions. I mentioned earlier in my statement that we participated in two larger syndicates.
Prior to the recession, there were many bankers in Canada. Foreign banks were here; U.S.-based banks were here. BDC was not needed as much. It is our opinion that the current situation will continue for a number of years, because I do not see some of the foreign banks coming back quickly to Canada. We will continue to do the type of transactions that we have been doing over the last 24 months, in conjunction with financial institutions. We see that continuing for a while.
Senator St. Germain: Do you have a limit on your loans?
Ms. Métivier: Our board will oversee certain transactions. Normally I would say that we are comfortable with a range from $50 million to $60 million. That is our comfort zone. Have we exceeded that in some cases? The answer is yes.
Senator Greene: I have a quick follow-up question. Why would the foreign banks not come back to Canada?
Ms. Métivier: They will eventually.
Senator Greene: Our economy is in relatively better condition than others, and they have to operate somewhere.
Ms. Métivier: We have seen some of the foreign banks coming back, but I would say not aggressively. The financial system in the U.S. has to fix itself first, and then it will probably expand eventually. There is no doubt in my mind.
The Chair: That raises the following question: If they do come back, would you gracefully withdraw from the sector that you have been exploiting, or would you keep your place?
Ms. Métivier: BDC has always been and will always be an instrument of public policy, which means that we fill the gaps in the marketplace. We are market-driven in the sense that if the demand continues to be there, we will be there. If the demand diminishes, that is where we perhaps withdraw a little bit and wait for the next storm. That is how it is.
[Translation]
The Chair: I would like to take you up on your offer to provide us with the documents on the cross-section analysis that Senator St. Germain spoke about earlier.
Ms. Métivier: We have taken note of your request, Mr. Chair.
The Chair: Thank you. It would be greatly appreciated if you could send the documents to our clerk.
[English]
Senator Moore: Thank you, witnesses, for being here. Your capital was increased by $350 million. What was it before that? Also, your credit capacity was increased by $1.5 billion. What was it before that increase?
Ms. Métivier: I will talk about the equity of the bank. I do not have the exact figure, Senator Moore; I apologize. However, I think our equity stands at about $2 billion right now or maybe a little over $2 billion. Half of it would be in common equity, which is invested by our shareholder, the Canadian government; and the other half, or close to the other half, would be probably the retained earnings of the bank, because we are commercially viable, as you know.
I have to correct this statement. Our equity is closer to $3 billion at the moment, because we were also given additional equity for the CSCF program. About $900 million was set aside for that program. In essence, our shareholder has invested close to $2 billion in BDC, and we pay a dividend on those common shares every year when profitability permits.
To your question, the $350 million was given to us in addition to the equity that we have because the way equity works is that for every dollar of equity that you have, you can lend $10. That is what you do in BDC financing, in the financing business.
When my colleague here takes $1 of equity, he can invest only $1 of equity, so it is punitive from a venture capital perspective. From the lending perspective, for every $350 million that I have, I can lend $3.5 billion. You multiply by 10.
Senator Moore: You have an extra $350 million, but you do not know what your starting point was. Is that what you are saying? Were you at $1 billion? What was it?
Ms. Métivier: We were close to $2 billion. I do not have the exact figures. We got $350 million more.
Senator Moore: On top of that, yes.
Ms. Métivier: Then we got another $900 million later on for the CSCF program. That brings us close to $3 billion.
Senator Moore: On the credit capacity, you were increased by $1.5 billion. What were you before that?
Ms. Métivier: This was the total common share at BDC. That was the ceiling that was put in our act — we could not exceed $1.5 billion — so the government increased that ceiling to be able to reinvest into BDC. It increased the ceiling to $3 billion. That is where we are right now.
Senator Moore: So you were at $1.5 billion, and it was increased to $3 billion?
Ms. Métivier: Exactly.
Senator Moore: On the bottom of page 3 of your remarks you mention BDC's financing and securitization services. What is that? Could you explain that to the committee and to the public? What does "securitization services" mean?
Ms. Métivier: The term refers to the CSCF, the credit facility that was asked of BDC. In Canada's Economic Action Plan, we were asked to kick-start the asset-backed security market, meaning that market was not functioning properly. BDC was asked to put a program in place to buy asset-backed securities.
Senator Moore: Yes, I remember that.
Ms. Métivier: The generic title for that is "securitization." It means that, for instance, if Mr. Egan and I decide to buy a car — and, in this case, it was for a car, vehicle and equipment, the three categories — we lease it from the dealer or the car manufacturer, and eventually they pool those two leases together and they sell it on the market.
Let us say that Mr. Lawler has a bit of money. He decides to invest, and if he likes the return on that asset-backed security, or piece of paper, he will invest the money and purchase. That is how it works. We call that securitization.
Senator Moore: You had a facility of $12 billion for that purpose; is that not correct?
Ms. Métivier: Yes.
Senator Moore: On page 5, you say "since September." I guess you mean September 2009.
Ms. Métivier: Yes.
Senator Moore: "We purchased securities totalling $1.65 billion."
Ms. Métivier: That is right.
Senator Moore: So you still have a large capacity.
Ms. Métivier: The program is ending March 31.
Senator Moore: I see that, yes.
Ms. Métivier: The first time we went to the market to purchase a security, we did that at a certain price. All the companies that wanted to benefit from selling those securities to us were able to raise the funding directly from the market. BDC really played its role; it pegged the price in the market, and some of the players, whether it was GMAC or Ford at the time, were able to raise the money they needed elsewhere.
Therefore, in September, we decided to put it more broadly open, and that is what we did. We will probably end with a portfolio of asset-backed securities in an amount a little over $4 billion when we finish all the transactions that are in process at the moment.
Senator Moore: Did you actually get $12 billion in cash to use for these purposes, or did you get an extension of credit that you could use if you had to?
Ms. Métivier: We received equity in the amount of $900 million. With that, we borrow the difference in the marketplace. We use our equity and borrowings to be able to purchase whatever we need. We lend the same way. For every dollar, I can do $10 of lending. The difference we borrow in the marketplace.
Senator Moore: From whom do you borrow that money?
Ms. Métivier: We borrow it from investors who want to have a triple-A rating. BDC has a triple-A rating from the Canadian government.
Senator Moore: When the Canadian Secured Credit Facility was announced, it was indicated that BDC will use relevant benchmarks and historical spread relationships to ensure an appropriate risk-adjusted return on the asset- backed securities that are purchased.
Ms. Métivier: Yes.
Senator Moore: What is the range of the expected return?
Ms. Métivier: We expect a return of about 150 basis points on the cost of funds of BDC, which is the market rate. It is market-driven.
Senator Moore: I found the Tandem vehicle interesting. At the bottom of page 7, you said that in January BDC received $75 million of venture capital funds via the 2008 federal budget. Do you mean January 2010 or 2009?
Ms. Métivier: We received the money a year after it was announced. It took us a year to get other players interested in the fund. The fund closed, actually.
Senator Moore: Did you get the money in January 2010?
Ms. Métivier: It was 2009. Last year.
Senator Moore: The money will be invested in Tandem, a new $300-million, privately run, late-stage venture capital fund that closed during the third quarter of the fiscal year.
I would like to know what you mean by "late-stage." When you say "closed," could individuals invest in it? Who are the other people who could invest in that fund, such that there was a cut-off date and it was closed off at $300 million?
Mr. Egan: I will take the first part of the question first — what is "late-stage." The overwhelming bulk of the investments that BDC makes as a venture capitalist are early stage, which means pre-revenue. This could be anything from a research scientist in a university lab to a technologist who works for a large company who decides to be an entrepreneur. There are not too many early-stage investors these days, but this is BDC's forte.
Historically, even in better times with venture capital, we have found that, as companies mature, you typically fund them through several rounds. There could be a seed round, several early-stage rounds, and maybe an expansion round.
You need a late-stage investor. It will typically be the last round of venture capital before the company is cash-flow positive and hopefully can go public on a publicly traded stock exchange.
Senator Moore: Is this the commercial part of it, or is all of what you said part of the commercialization?
Mr. Egan: What was missing in Canada was a venture capital fund with a specialized focus on more mature companies that needed a late-stage round of capital and that had managers within that fund who knew what in addition to money those companies needed in order to reach profitability and successfully go public. There was not sufficient late-stage capital in Canada, and that is why we focused on creating a late-stage fund.
What "closed" means is that, depending on the sector the fund is investing in and the stage the fund is investing in, the limited partners would like to see a minimum amount of capital in that fund before it starts operations in order that it can survive.
Senator Moore: I understand that, but who could be the other investors, the partners you are talking about?
Mr. Egan: There are other limited partners. Another large limited partner was EDC. Then there are mostly government organizations and funds of funds.
Senator Moore: Funds of funds. We have heard of that before around this table.
Senator Ringuette: Let me start by saying I believe your organization has played a vital part in our business communities. I have a few important questions.
Are the loans you provide to businesses covered by the Canada Small Business Financing (CSBF) Act?
Ms. Métivier: No. They are separate. The Canada Small Business Financing Act is a program administered by Industry Canada.
Senator Ringuette: None of your doubling of impaired portfolio is covered by that?
Ms. Métivier: No.
Senator Ringuette: That is interesting. The six big banks have access to that 80 per cent guarantee loan.
Ms. Métivier: Not us.
Senator Ringuette: Are you saying you do not have access to that?
Ms. Métivier: No, we do not.
Senator Ringuette: When you talked about investors to do some asset buy-back, you said you have to borrow money. What is your interest rate?
Ms. Métivier: The cost of funds of BDC is the same as the Canadian government, because we borrow through the central agency of the Department of Finance. We borrow through Canada, basically. It is exactly the same cost of funds.
Senator Ringuette: What is that cost?
Ms. Métivier: That is a very good question. I do not have the answer today. I cannot answer that, but I could get back to you.
Senator Ringuette: Do you know what it is approximately?
Ms. Métivier: Approximately, it is 50 to 100 basis points, and you have to add to that the cost of operating the bank. There is a cost to operating the bank, as well.
Normally, we charge for risk, meaning that you will have to add the premium. If we lend to someone else, they also have to pay a premium according to their own risk.
BDC borrows to complement its equity to be able to do its activity. It is a normal process for us.
Senator Ringuette: A few minutes ago you said in regard to the Canadian Secured Credit Facility that you borrow from investors. Who are those investors?
Ms. Métivier: I was giving an example of what securitization is about. In a typical marketplace, investors would invest in ABS. In this case, BDC acted as the investor because there was no appetite in the marketplace.
Senator Ringuette: Would the money you had to invest come from the same source, that is, the federal government?
Ms. Métivier: Yes, from borrowing.
Senator Ringuette: Via the Treasury Board?
Ms. Métivier: The Department of Finance.
Senator Ringuette: The cost of those loans is roughly 1.5 per cent — 50 to 100 basis points plus the cost of the bank and so forth. Let us be generous — maybe it is 1.3 per cent. On the other side of the scale, your expected return is 1.5 per cent. You are looking at a return of 0.2 per cent or 0.3 per cent if you do not lose any of the venture money.
Ms. Métivier: No, the ABS is priced at cost plus 150.
An example of a loan is easier to understand. The loan that we grant to a company is the cost of funds to BDC, plus the risk premium. As an entrepreneur, you will probably pay between 5 per cent and 6 per cent. That will cover the cost of borrowing, of operating the bank, and the premium attached to your risk. We have to be commercially viable. We have to cover also the operating expenses of the bank and future losses, if there were to be any losses on a portfolio.
The fact that we take higher risk has to be factored into the premium that we charge our clients. We are not a cheap solution on the marketplace; that is not the case.
Senator Ringuette: I hope not, since you are backed by the taxpayers of Canada.
Ms. Métivier: We return a dividend on our common shares every year; we are profitable.
Senator Ringuette: You indicate on page 5 that you announced in September that funds left over would be offered on a first-come, first-served basis until the program expires on March 31, 2010. Since September, you have purchased securities totalling $1.65 billion. When exactly was that purchase made?
Ms. Métivier: I do not have the exact date, but it was sometime in the fall. We have three or four transactions.
Senator Ringuette: No. When was the first-come, first-served security buy-back process started?
Ms. Métivier: We started in September. A number of transactions totalled the $1.65 billion. I do not have exact dates, but I could provide them if you wish. There were press releases each time we did it. I could provide that.
Mr. Egan: I have the dates. They are January for $1.3 billion and December for $0.3 billion.
Senator Ringuette: On October 28, some of your colleagues appeared before the Standing Senate Committee on National Finance — Mr. Wayne Foster, Mr. Paul Buron and Ms. Paula Cruikshank. I asked about the auto lease buy- back for the $1.65 billion you are referring to.
I will paraphrase from the meeting of October 28, 2009, of the Standing Senate Committee on National Finance in which it was indicated to us that you had gone through a first round of trying to get interest from various auto manufacturers in Canada regarding their auto leasing and purchase plans.
Ms. Métivier: Yes.
Senator Ringuette: There were no takers.
Ms. Métivier: At that time.
Senator Ringuette: There were no takers, and the private market was doing its job. On October 28, members of the Standing Senate Committee on National Finance said that was good because you would not need to borrow money, backed by Canadian taxpayers, to supply to the leasing and auto purchasing group.
Ms. Métivier: Yes.
Senator Ringuette: There was no response to that. We assured you that you should not go for a second round if the private market was doing its job and you had no takers: Save the tax dollars. Our recommendation at that time was that the private market was doing its job. However, you went ahead and bought $1.65 billion in automobile leases and purchases.
Ms. Métivier: Yes.
Senator Ringuette: From whom did you buy it? What risk did you have to take on a second round of offers?
Ms. Métivier: All of the risk criteria were the same as for the first round. We did not change them. This was discussed with the Minister of Finance and agreed upon by the Department of Finance. The ABS market was, and still is, not back to where it should be. It is not functioning as it was two years ago. We went for a second round, and a number of players wanted to benefit from us as an investor. The program is ending at the end of March; it has done its job. What was originally thought to be a gap in the marketplace of about $12 billion is turning out to be much lower than that.
BDC's role was to reassure the marketplace that these types of transactions were of good quality. Please understand that we are purchasing rated companies. We are not purchasing unacceptable risk for the taxpayer or for BDC.
That is where we are today. We still have a number of transactions to be concluded. We were asked to ensure that the market would return to somewhat of a normal stance. That was the role BDC needed to play.
Senator Ringuette: Can you supply the members of this committee, through its chair and its clerk, the list of organizations?
Ms. Métivier: Yes, we can for those that are public. We make a public statement every time we make a purchase. We can provide anything public.
Senator Ringuette: Will you provide the amount?
Ms. Métivier: Yes, we can do that.
[Translation]
Senator Hervieux-Payette: I would like to welcome our witnesses.
With regard to venture capital, we just talked about the businesses that used the program and about the extent to which they used it. One of the program's objectives was to help manufacturing companies. We talked about vehicles: private automobiles, commercial trucks, cranes and tanker trucks, that is, commercial vehicles versus personal vehicles. I would like to know the ratio between cases where businesses were helped in acquiring commercial vehicles as opposed to cases where they were helped in acquiring personal vehicles.
I think that it would be interesting to see who the recipients of assistance were. This would of course exclude businesses that were provided with new capital after completing manufacturing and were provided with additional sums of money with a view to helping a struggling industry.
With regard to venture capital, I would like to know if the Caisse de dépôt still has arrangements with BDC for coming to agreements — not loans — making investments on its behalf. Did those arrangements continue? Do they still exist, and if so, for what amount?
Ms. Métivier: They no longer exist. As you know, we had an agreement with the Caisse de dépôt for a period of about six years. The agreement expired this year and was not renewed, simply because, as every good partnership, it ran its course. I think that the Caisse de dépôt wished to go in a different direction and focus more on Quebec. As you know, our vision spans all of Canada, and our interests and investments are countrywide. The agreement you speak of has expired.
Senator Hervieux-Payette: Regarding venture capital, Mr. Glenn Egan was saying that the final phase was difficult. What size of investment are we talking about? From what I understand, the sums of money needed for an inventor to begin a project are small when compared to the investments required for commercial manufacturing. I was wondering what part of the amount we are talking about; between what and what for this phase?
[English]
Mr. Egan: It is not perfectly straightforward because some of it depends upon the sector. Certainly, an early stage or seed stage investment in most technologies, such as clean tech, green tech, energy or ICT could be as low as $0.5 million to up to $2 million. That is a core part of what we do. In the area of life sciences, for example drug discovery, a seed investment could be small or it could be much larger.
At the late stage, which is the last round of equity financing required by a company to offset its final losses before it reaches profitability, it depends on what the public markets expect the balance sheet to look like at the time the company goes public. These are typically $10-million to $20-million rounds at minimum and can be as high as $50 million. These are significant, and it depends on the sector. There is not one stock answer to the question.
[Translation]
Senator Hervieux-Payette: Given the fact that funds and venture capital have benchmarks, what is the rate of success of your investments? We know that you are willing to take more risk than private funds are, but I would like to know what kind of performance you have achieved.
[English]
Mr. Egan: Do you have an easier question? It is a very good question but a difficult one to answer. Unlike a loan, when you make an early stage venture capital investment, it is typically five or eight or ten years. Today, it is sometimes longer than ten years before you get a return. BDC was a modest, low-volume investor that became a larger investor in the year 2000. Only now are we beginning to harvest our better companies.
We have had a series of consecutive years of significant losses as our portfolio of weaker companies failed. That was made worse by the deterioration in our co-investment environment where many of our co-investors walked away from deals that could no longer support them.
This year, we have definitely turned the corner. We will come in this year where we predicted. The M&A market and the public market have opened up. We have started to see some positive exits, but certainly the last few years have not been very fruitful or profitable.
[Translation]
Senator Hervieux-Payette: I hope that you understand that I expected an answer like this from you. I did not expect you to tell me that nine out of ten businesses have become profitable. I feel that the idea you had with the venture capital program was to help Canadian inventors manufacture new products and get into the market. The idea was not to pay tax credits for research and development, only to end up with foreign companies acquiring the businesses that developed because of your funding. The goal is to keep the businesses here.
Does your organization anticipate improvements in the coming years, in the sense of emphasizing certain industry sectors, such as green technology or even medicine? In other words, could emphasis be placed on industry sectors in which new technology could really play a key role?
[English]
Mr. Egan: First, I will talk about what we do in our portfolio, which is large. We have several portfolio companies that are in the process of trying to file to go public so that they can stay and become new anchor, long-term companies in Canada. It is the very nature of venture capital that not only do many companies fail but also that the bulk of companies end up being acquired by larger companies, many of which are foreign. That is the nature of the business. It is not necessarily a bad thing, because the entrepreneurs learn, grow and develop talents. Great entrepreneurs want to do it again, and eventually they build those anchor companies that we want.
With respect to sector, we review our sector approach. We are organized by sector, so we have a life sciences group and an ICT group. Recently, we took our advantaged technologies group and refocused it on energy, the environment and clean technology. That is an area of growth, where there are now co-investor venture capital funds willing to co- invest with us. Each year we review our focus and shift our investment to the sectors and sub-sectors that we think will attract the most venture capital and create the greatest disruptive companies.
Would you like more information?
Senator Hervieux-Payette: My last tough question is this: We used to have a special program for women investors. Why did you abandon it?
Ms. Métivier: I will take this one. I recall that because I set it up at the time. The sector was mostly for subordinated financing and quasi-equities.
We have not abandoned it. We continue to support women entrepreneurs in our portfolio with traditional financing as well as with quasi-equities. In the venture capital area, when we have a good proposal, whether from a female or male, it is a good proposal. It does not matter.
What we have seen from women entrepreneurs more and more — and I have been told this many times — is that they simply want to have the same treatment at BDC. We do not distinguish by gender or by cultural background. We have a very diverse group among the 28,000 entrepreneurs. We have Aboriginal-owned companies; we have new- immigrant companies. Therefore, we try to mirror Canadian society, basically.
We did not abandon it, but after a while we felt that women were well served and were not discriminated against based on gender. That is how we approach the business now.
Senator Hervieux-Payette: Just to complement that, how many staff — the analysts and the people dealing with entrepreneurs — are women?
Ms. Métivier: In the bank, we reflect the society. I am proud to report that we have had two or three awards in the last three years — I think last year we had the Diversity Award here in Canada. If you walked into any of our business centres, you would see that we reflect the society in which we are doing business, by cultural background and by gender. I would suggest also that we do even in our executive team.
Senator Hervieux-Payette: This is not a question, just a suggestion for when you make your next report, which we receive on the Hill with nice colour pictures. There was not one picture of a woman entrepreneur; there were only men. That is why I am asking that question. To reflect the reality, it would be nice to have a good balance, because this is the trademark of your organization.
Ms. Métivier: I take note of that; thank you.
The Chair: We will move to a second round, but do not feel, colleagues, that you all have to participate. If you do, you must limit yourself to one question.
Senator St. Germain: Thank goodness you are here, Ms. Métivier, being that you are a woman and you are the lead on this panel. It is encouraging.
In British Columbia, we have a lot of one-industry communities. A certain file was brought to my attention that related to the forest industry. There was an impairment in the repayment of the loan — I like to call it a default — and I would like to know what the process is for that.
Are there any compassionate grounds for cases when you are dealing with a one-industry town, like the one I am referring to, though I would sooner not name it? Does this go through the normal process, or is any special consideration given?
Can you suggest anything to us as political people, because tremendous pressure is put on us. They say, "You guys are the government. We pay taxes and we still want to pay taxes." I can understand that you can only go so far because you have to look after the interest of the taxpayer's dollar, but is any special consideration given in these circumstances?
Ms. Métivier: When a company goes into a difficult period, BDC has a special loan group, meaning a group of experts that are geared toward looking at how to help this company go through this difficult time.
We are a patient lender. We will postpone your payment; we will help you go through as long as we have confidence in the owner, the management of the company and the business model.
A couple of things need to happen during a difficult period for a company. The company needs to have a plan. If it does not have a plan, if the management is not committed, we cannot want more than the management of a company.
Second, the business model has to work. During this recession, we have found that some business models did not function, were not capable of surviving through a recession. That, too, is taken into consideration.
That team we have across Canada — and we have one in B.C. as well as elsewhere — will look at this company and what shape it was in when it went into the transition period or the difficult period. If the company was in good shape and has shown the ability to manage profitably in the past, we will help it go through. If it was not in good shape, why was that the case? Was it because of management or the way the company does business? Those companies are difficult to pull through.
There is a fine line between a commercial bank, which is what BDC is all about, and subsidy; we are not in the subsidy business. If a company does not have the business model or the management capability to transition through a difficult time, sometimes the decision from the BDC perspective is tough on the company, because we have to consider whether we are throwing good money after bad. There are difficult decisions to make.
At the end of the day, BDC's act says we have to be self-sustaining and commercially viable. That means we have to be able to generate a return to cover our losses, our operating expenses and any other transactions that we do.
Our reputation in the marketplace is that of a patient lender. If we have to go into realization in a company, it is because we have exhausted all possible means of helping that company.
I believe in this fundamentally. I have been at BDC for 10 years; prior to that, I was with another financial institution. That is two models. We are much more patient at BDC.
Mr. Lawler: To add a couple of points to what Ms. Métivier said, from a patience perspective, this year up to the end of February we postponed capital payments on loans of $1.6 billion to entrepreneurs to help them get through challenging times.
Second, what makes BDC unique are the consulting services we provide to Canadian companies that perhaps need work in order to help them be more successful; that is one of the things BDC does. We are one of the few organizations that provide pan-Canadian consulting services to small and medium-sized businesses across the country. It is an important part of what we do. We have specialized people across the country who can help companies to refine their business models and hopefully achieve long-term, sustainable success.
Senator Ringuette: Like Senator St. Germain, I come from a forestry area, where forestry is very important. When you give us the sector information, could you also provide with regards to the forestry sector statistics on whether it was through your loan or your venture capital? Was it for renewal of equipment or new green technology?
Ms. Métivier: Do you mean the purpose of the loan?
Senator Ringuette: Yes.
Ms. Métivier: I believe we can, but please understand that last year many transactions that we did in the forestry sector were not necessarily for projects, because they did not do much investment. It might have been to provide them some relief in their working capital — sometimes we do that — but we can look at what the main purpose was.
Most of the forestry would have been done through traditional lending. Venture capital is mostly for new technology or research and development in high technology.
Senator Ringuette: I am surprised, because you said earlier you do not go into cash flow.
Ms. Métivier: We provide working capital support. Let me give an example. If a company says, "I need more working capital for a new contract," we can provide term financing to support that working capital. It goes back to specific projects. That is where we do it. It is not operating facility.
Senator Ringuette: I would appreciate any details you can provide us in regards to the forestry sector.
Senator Gerstein: Thank you, witnesses, for your wonderful presentations today. I wanted to check several things I thought you said. Did you say that a mandate of BDC is that you must be self-sufficient?
Ms. Métivier: Yes.
Senator Gerstein: Did you say also that, since your start-up date, you have increased the retained earnings of the company by $1 billion?
Ms. Métivier: Since 1995. BDC's act is dated back to 1995. Before that, as you are probably aware, it was the same institution but it was known by another name, beginning with "Federal." I cannot remember it, but it is a long title.
Senator Gerstein: You have increased since 1995 your retained earnings by $1 billion.
Ms. Métivier: Almost, yes.
Senator Gerstein: Did I also hear you say that you have always paid a dividend?
Ms. Métivier: We have since 1997.
Senator Gerstein: In good years and bad years, you have always paid a dividend.
Ms. Métivier: We have always been profitable. We pay a dividend, and we will probably pay a small dividend this year, as well.
Senator Gerstein: Therefore, we can take comfort as a committee in knowing that the taxpayers of Canada have been well served by their investment in BDC.
Ms. Métivier: We are very proud of this, senator.
Senator Gerstein: As are we. Thank you.
Senator Moore: I have one question and a request.
The Tandem venture capital fund is privately run. Who runs it?
Mr. Egan: There are two senior managers, both long-term executives. They are very experienced, one in private equity and one in venture capital.
I do not know if their names are public or not. I can find those names in the press release for you.
Senator Moore: Please get that information to the clerk. I would like to know who runs it and who the other partners are, their names and respective investments.
Mr. Egan: I think the major investors are public.
The Chair: Could I ask one last question?
There is not much left after all these astute questioners; they covered the waterfront.
Ms. Métivier, you may have mentioned this in response to Senator St. Germain. I am looking at what you have learned having gone through the economic meltdown we have all lived through — what you as a bank have learned. I think I heard you say that you are paying strict attention now to business models and management.
Could this company live through another similar crisis? None of us lived through the Great Depression, probably. However, this is the worst thing we have ever lived through, so we know it can happen. You know it can happen as a person in authority in the bank.
What have you learned, what have you changed, and do you have the flexibility under your legislation to fill gaps that perhaps none of us can predict arising in the future?
Ms. Métivier: I think it is a great question. I want to talk about what we have learned, because this is our third recession in memory at BDC. It shows my age by saying that.
This one was different than the previous one. At BDC, we have a wealth of information about Canadian businesses in Canada. We have information about every entrepreneur and every business that has banked with BDC over the last 30 years; we capture some data and we are able to look at the rates of failure, et cetera. We learn from each one of those recessions.
This one was very different from the previous two that we lived through in the early 1980s and the 1990s. The liquidity crisis created the recession, essentially, so there was a lack of availability in the credit in the marketplace for a period of time. For a lender like us or for bankers like us, it was like we were trying to see where this would lead. It was hard for us to predict the future.
Having said that, we learned that BDC, as an instrument of public policy, has to be in a state of readiness. A state of readiness means that you have to have enough competencies within the organization to be able to respond if there is a crisis.
We were discussing those competencies earlier: It is market driven; BDC retrenches; BDC comes in the forefront. However, you must have a minimum competency to step in and fill a gap. That is what we learned, particularly with this type of recession. That is the first thing.
The management of BDC is considering how we keep that state of readiness and how we keep that competency, so that if there is a need for you to step in and step up, you are able to do it. That is one of the fundamental things we learned from this recession.
Second, if you have to build something from scratch, which was the case of CSCF, for instance, you have to go through due process and due diligence. You cannot take on risk on the balance sheet or on the activity of BDC that would jeopardize the future of the organization.
Regarding your last question as to whether the act is sufficient to allow us to do what we need to do in a crisis period such as the last 24 months, I would say that we have probably stretched the boundaries of our act. As you know, we are about to go through our legislative review in the next 12 months. Therefore, we are reflecting on what is needed if there is a need to change the act for the future of Canada.
As a public policy instrument, BDC has proven its worth. Mr. Chair, you started this meeting by saying you are concerned about global aspects of the financial global market. There are not too many North American countries or even European countries that have development banks like BDC.
In Canada we have found the state of readiness of having a development bank allows the movement of money or credit faster than if we had to build it from scratch. That is also part of learning, I believe, from your perspective when you reflect on the need and why we need a development bank in Canada.
The Chair: That is very well said.
Let me ask you something in conclusion: Are you happy with and would you argue for the continued separation of BDC, FCC and EDC?
Ms. Métivier: We have three different mandates, and we are not in the business of making policy. As you know, we execute public policy. This is probably a question for people other than just BDC. It is a question that is bigger than just BDC. I would not venture to offer an opinion on this one.
Senator Harb: Wise response.
The Chair: Still, it is a question we will have to turn our minds to. Who better to give us some guidance than you? Obviously, we will have to find it in other places.
Thank you for being here this evening. We appreciate the candour and the completeness of your interventions. It has been a useful exchange. If something comes to your mind that we forgot to ask you or you forgot to tell us, please include it in the voluminous letter you will be sending us which will contain all the information you have kindly undertaken to furnish.
Ms. Métivier: Mr. Chair, members, we were honoured to participate today. Thank you.
(The committee adjourned.)