Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 10 - Evidence - October 20, 2010
OTTAWA, Wednesday, October 20, 2010
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:20 p.m. to undertake the 10-year statutory review of the Business Development Bank of Canada as required by the Business Development Bank of
Senator Michael A. Meighen (Chair) in the chair.
The Chair: Honourable senators, I see a quorum, so I call this meeting of the Standing Senate Committee on
Banking, Trade and Commerce to order.
I will start by introducing the senators for the benefit of our guests. On my left is Senator Harb from Ontario,
Senator Moore from Nova Scotia, Senator Poirier from New Brunswick, Senator Gerstein from Ontario, Senator
Massicotte from Quebec and Senator Ringuette from New Brunswick. I will not say New Brunswick is
disproportionately represented but as usual is at full strength, and they are a force to be reckoned with, I assure
you. Other senators will arrive. The Senate just rose, so they will be along in a moment or two.
Honourable senators, this afternoon we will start our review of the Business Development Bank of Canada Act. Our
order of reference states:
That the Standing Senate Committee on Banking, Trade and Commerce be authorized to undertake the 10-year statutory review of the Business Development Bank of Canada, as required by the Business Development
Bank of Canada Act and,
That the Committee submit its final report no later than December 31, 2010, and retain until January 11, 2011
all powers necessary to publicize its findings.
Today our committee is privileged to be joined by two esteemed and accomplished representatives from the Business
Development Bank of Canada: Mr. Jean-René Halde, President and Chief Executive Officer; and Mr. Brian Hayward,
a member of the BDC Board of Directors. Mr. Hayward, were you the chair of the governance committee?
Brian Hayward, Board Member, Business Development Bank of Canada: It was the review committee for the
The Chair: Thank you.
Mr. Hayward joined the BDC board of directors in 2008. He is president of Alder Resources, a business consultancy
that provides strategic advisory and governance services. From 1991 until 2007, he was CEO of Agricore United, the
largest agribusiness in western Canada. He also has provided leadership to many non-profit organizations, and he also
sits on the boards of several public and private corporations. Mr. Hayward holds a master's degree in agricultural
economics from McGill University and is a graduate of the Directors' College of McMaster University's School of
Honourable senators, Mr. Halde joined the BDC as president and CEO in June 2005 and was reappointed in 2010.
Before joining BDC, Mr. Halde had more than 30 years of management and entrepreneurial experience holding CEO
positions at leading companies including Métro-Richelieu, Culinar and Livingston Group Inc. He has also served on
the boards of many leading private, public and not-for-profit organizations. Mr. Halde presently serves as Vice-Chairman of the Conference Board of Canada and as a director of the Montreal General Hospital Foundation. He
holds an MA in economics from the University of Western Ontario and an MBA from Harvard Business School.
As followers of our committee will recall, we last heard from the Business Development Bank of Canada on March
24, 2010. At that time we discussed the BDC's role in helping to mitigate Canada's exposure to the global economic
and financial crisis. Back in March we heard details on how, as part of the federal government's extraordinary response
to the global financing and economic crisis, the governmental allocated $350 million in capital to the BDC and
increased the corporation's credit capacity by $1.5 billion.
As required by statute, the Government of Canada is currently engaged in its 10-year review of the Business
Development Bank of Canada Act. To assist in this undertaking, the committee will be hearing from stakeholders of
BDC and others who have examined the BDC functioning and mandate.
Gentlemen, welcome to our committee. Before turning the floor over to you, I want to note the presence of Senator
Hervieux-Payette, the deputy chair of this committee.
Senator Hervieux-Payette: Thank you.
The Chair: If you gentlemen have an opening statement, we would be pleased to hear from you now and then we
hope you will be open to questions.
Mr. Hayward: Thank you, and good afternoon, senators. It is a privilege for me to be here today to review BDC's
delivery of its mandate and the challenges facing Canada's entrepreneurs, and to offer our views on what the challenges
mean for BDC.
As some you are aware, our chairman, John MacNaughton, would have loved to have been here but is absent for
I will be brief with my background. Because this is my first appearance before the committee, I would indicate that
in addition to what the chair outlines, my role running an advisory practice includes involvement on the boards of two
public and two private medium-sized enterprises. As a director of BDC, as was alluded to, one of my duties was to
chair the legislative review committee.
My board colleagues and I have spent much time preparing for this review going back to strategic retreats over the
past two years. We believe BDC truly understands the needs of entrepreneurs and is doing a great job of meeting those
needs. For example, in 2008 and 2009, which were obviously difficult for the economy, BDC did more than 16,000
financing transactions and 5,300 consulting mandates to help entrepreneurs. Those are impressive numbers.
But it is difficult to predict what they will need for the next decade. The changes to their competitive environment
are many, fast and hard to predict. What is clear is that BDC must be flexible if it is to keep helping them. This is why
we recommend more flexibility in the act.
The 1995 BDC Act was very well written and has served entrepreneurs well. But its precision as to what BDC can
and cannot do sometimes prevents BDC from offering entrepreneurs the support they need and request.
I will now turn to Jean-René Halde to present BDC's recommendations, recommendations the board fully supports.
Jean-René Halde, President and Chief Executive Officer, Business Development Bank of Canada: Thank you, Mr.
Chairman, for the time and energy you are giving to this legislative review. I jointed BDC five and a half years ago after
30 years in the private sector. I genuinely believe BDC is fulfilling its role as this country's business development bank,
and that it is doing it extremely well, at no cost to the taxpayer.
I believe most entrepreneurs, and the people and organizations that serve them, see BDC as an important source of
support. I can tell you that we meet with and benchmark ourselves against other development banks around the world,
and we are considered to be among the best.
BDC has helped a lot of entrepreneurs since 1995. It has extended $33 billion in financing, subordinate financing
and venture capital to more than 60,000 Canadian firms and completed more than 25,000 consulting mandates. Our
clients employ more than 650,000 people across the country. They generate $174 billion in annual revenue. This is the
equivalent to the GDP of Singapore.
The $1.2 billion in venture capital that we have invested in 450 high tech companies and the $330 million presently
subscribed to 23 private sector funds have been and are vitally important. The time limit on our statement does not
give enough time to discuss venture capital as it should be, so I would welcome your questions on it.
BDC clearly delivered on its mandate during the recent financial and economic crisis. We provided close to $10
billion in liquidity to Canadian businesses. Last fiscal year alone, we lent more money than at any other time in our 65-year history: $4.4 billion, a 53 per cent increase over the preceding year. The average financing was slightly more than
$500,000 per business, which means we helped a very large number of businesses.
The world has changed since 1995; it is faster paced and constantly changing. Emerging economies will generate
most of the world's growth in the near term; entrepreneurs around the world are developing new products and new
ways of delivering services and gaining competitive advantages. Our firms have no choice but to do the same. Some of
them need the advisory and financing support of their development bank to keep pace with their foreign competitors.
In this globally competitive marketplace, Canada's future prosperity will depend on the ability of its entrepreneurs
to innovate faster than their foreign competitors. We must make innovation Canada's competitive edge, and we will
only be able to do this if our businesses — one entrepreneur at a time — adopt a global mindset and invest in
innovation and growth. The defining feature of their world is constant adaptation and they need the institutions that
support them to be as flexible and innovative as they have to be themselves.
In summary, entrepreneurs need a more flexible BDC, and we have three recommendations in this regard. Before I
get into the specifics of the recommendations, I would emphasize that these proposals are all cost neutral.
Recommendation No. 1, entrepreneurs need BDC to offer a broader range of financial tools. Its current act refers to
BDC providing loans, guarantees and investments to persons with a continuing commitment to the business. That is
too restrictive. It prevents us, for example, from lending money to the Canadian Youth Business Foundation, a not-for-profit organization, which would help extend our reach to entrepreneurs in a more efficient manner. Partnering
with organizations that are close to businesses is a proven method used by business development banks around the
Another example, many transactions to support business projects are now done through trusts as conduits. BDC
cannot use these in the normal course of business because there is really no amount invested in the trust that would
show the required continuing commitment to the business. It is a technical problem but it does have real impact. We
recommend that BDC be given greater flexibility to offer entrepreneurs a wider range of financial instruments.
Recommendation No. 2: Entrepreneurs need BDC to offer a broader range of non-financial tools. The act currently
limits BDC to a specific list of services such as business planning, management counselling, training and information.
Again, it is too restrictive. It prevents us, for example, from doing group arrangements for some entrepreneurs to help
them to buy and install information and communications technology. In effect, it prevents us from acting as an agent
in respect of some important business support activities. We recommend that BDC be allowed to offer a broader range
of non-financial tools.
Recommendation No. 3: Entrepreneurs need BDC to enhance the support it offers them when they want to establish a
presence outside Canada. As Canada's development bank, BDC has been supporting companies that are pursuing
opportunities in foreign markets. For instance, since the entry into force of the BDC act in 1995, BDC Consulting has
supported small and medium enterprises (SMEs) as they learn how to tackle U.S. and Mexican markets to reap the
benefits of the Free Trade Agreement and the North American Free Trade Agreement. In recognition of the importance
of BDC's support for exporters, our shareholder, the Government of Canada, made this one of our key performance
indicators at the time. In addition, BDC's Venture Capital's Asian and European networks also help by giving investee
firms access to partners in foreign markets. Most recently, the Department of Foreign Affairs and International Trade's
SME Advisory Board asked BDC to provide working capital financing to companies seeking opportunities abroad,
which we obviously did.
Today, BDC's 5,600 exporting clients generate over $21 billion in export sales. In supporting them, BDC
collaborates with many partners, including Export Development Canada (EDC), the Forum for International Trade
Training and DFAIT. As a matter of fact, some DFAIT officers are co-located with BDC employees in some of our
offices. While BDC has been active providing this support, it has been limited by the act in its ability to structure
financing in ways that suit the needs of its clients.
For example, if a company such as Magna or RIM or Bombardier were to open a plant in a foreign market and
wanted one of its Canadian suppliers to open a premise nearby, we could provide financing to the Canadian entity but
not to the subsidiary. While this may help the business secure the financing it needs, the approach, at times, over-leverages the Canadian corporation. It would be simpler and easier to help the subsidiary directly, provided there is a
demonstrated benefit to Canada.
We recommend that BDC be granted sufficient flexibility to support firms that want to expand beyond the domestic
market. This activity would continue to be done in conjunction and collaboration with other relevant market players
such as EDC and DFAIT.
There was a recent October 2010 study by CIBC that showed that the percentage of SMEs that export has declined
from 10.7 per cent in 2000 to 9 per cent in 2007. This is deeply troubling. Canada must reverse this trend if it is to
succeed in today's global economy. Again, this will have to happen one entrepreneur at a time.
These are our central recommendations. However, we also recommend first, that the act reconfirm our special focus
on SMEs and second, that it keep the concept of complementarity as the way we do business. We recommend that, for
the first time, the act should enshrine BDC's obligation to be financially sustainable. Currently, it is a Treasury Board
guideline. It is important to remember that we have been profitable every year since 1995 and have been declaring a
dividend every year since 1997.
Our fourth recommendation is that the ceiling for paid-in capital should be removed. We have reached our limit in
paid-in capital and this change would allow the government to inject funds in BDC if it wants us to act quickly on an
Finally, we recommend that there be minor housekeeping changes to the governance sections of the act to allow it,
for example, to give board committees some decision-making power.
In thinking about the coming decade, it is helpful to reflect on the recent past. When BDC was created in 1995, the
WTO had just been inaugurated, NAFTA was one year old, the Euro did not exist, the worldwide web was in its infancy
and cell phones were basically a luxury used by few. Since then the landscape for small- and medium-sized businesses has
been massively transformed and become more volatile. We know the global market will keep changing in the coming
decade. How the financial services marketplace will evolve is obviously not yet clear.
We know for sure that small- and medium-sized businesses will expect BDC to be responsive and agile and able to
provide timely and appropriate products and services. If the only certainties are change and uncertainty, then everyone
has to be flexible and adaptable.
The goal of our recommendations is to ensure that BDC has the flexibility it needs to help Canadian entrepreneurs
to tackle tomorrow's challenges as well as today's challenges. All of the above suggestions, and we have had many
discussions on this, are in line with our reason for being, which is to support Canadian businesses. Thank you for your
The Chair: Mr. Halde and Mr. Hayward, thank you. What is BDC's fiscal year?
Mr. Halde: Our fiscal year is April 1 to March 31.
The Chair: At page 6 you raise the example of a Canadian company wanting to open a plant in a foreign market and
wanting one of its Canadian suppliers to open a premise nearby. You said that BDC could provide financing to the
Canadian entity but not to the subsidiary.
Mr. Halde: That is correct.
Senator Moore: Did he mean the supplier?
Senator Hervieux-Payette: It is a Canadian supplier.
Mr. Halde: Let us go over the example. Take any large company, such as Magna, that opens a plant in Mexico.
They insist that many of their smaller Canadian suppliers open a plant close by, so they come to see us.
The Chair: Who are "they"?
Mr. Halde: "They" being the small Canadian supplier, not the large company. They ask us to help them to open a
small plant in Mexico, for example, so they can be close to their big customer, which is Magna in this example. At the
present time, the way the act is written, we can lend the money to the Canadian parent company of the small supplier,
and that Canadian company will transfer the money down to its subsidiary. At times, that over-leverages the Canadian
company instead of simply financing the subsidiary company. That is what I am talking about.
The Chair: Where in your recommendations do you ask for the remedy to that?
Mr. Halde: The remedy is in recommendation number 3, on page 5. It says
"Entrepreneurs need BDC to enhance
the support it offers when they want to establish a presence outside of Canada." We could show you the language in
the act that is very restrictive because it has to do with a business engaged in Canada. The wording in the existing act is
a bit tight.
Senator Moore: May I clarify this point, Mr. Chair?
The Chair: Certainly.
Senator Moore: Mr. Halde, using the Magna example and wanting one of its Canadian suppliers to operate a
premise nearby, we would provide financing to the Canadian entity but not to the subsidiary. You used that in your
response to the chair's question. That assumes that the supplier is a subsidiary of Magna in that example.
Mr. Halde: No. I will try again.
Senator Moore: If it is a separate company, it could come to you.
Mr. Halde: Yes, it does.
Senator Moore: The subsidiary does not come to you, so they are two separate things.
Mr. Halde: In global supply chains today, larger companies like to have their suppliers close by. Think of a company
that is manufacturing bearings in Canada. They are being asked to open a plant close by this enormous Magna facility so
it can provide bearings quickly. That Canadian company comes to us, and we can help them to finance the subsidiary,
but technically we can finance it only through their Canadian corporation and not the subsidiary.
Senator Moore: You are talking about a subsidiary and this bearing company you talk about is a free-standing
company, not a subsidiary.
Mr. Halde: That is correct. It is not a subsidiary.
Senator Moore: You can deal with them but if the supplier, the bearing company, is a subsidiary of Magna, then you
have to go through Magna. Otherwise, you can deal with that company directly.
Mr. Halde: Let me try again. In my example, the supplier has nothing to do with Magna. It is a Canadian company
that manufactures bearings. They want to establish a premise in Mexico so that they are close to their large order giver.
They want to create a subsidiary in Mexico and to buy a plant, so they want some real estate to be financed in Mexico.
Under the existing act, BDC cannot take a mortgage on the facility in Mexico and provide them money directly for
their plant in Mexico. BDC can provide money only to their operation in Canada because that is the only way to do it
under the act. Their Canadian company then becomes leveraged, and they basically funnel the money down for the
plant in Mexico.
Senator Moore: BDC can provide funding to the Canadian supplier but not to its subsidiary.
Mr. Halde: That is correct. You have said it perfectly. Thank you.
Senator Moore: Thank you.
Senator Massicotte: I believe we understand. You can do it with a Canadian corporation but not with a foreign
corporation. I suspect that the only reason the Canadian company would not want the loan directly is that it does not
want to guarantee the loan. It wants the loan to go directly to the subsidiary so that it can avoid the risk of
guaranteeing the loan. If that is so, why is it good for the BDC? If the bearing company does not want to take the risk,
why would BDC want to take the risk?
Mr. Halde: In this example, we are happy to take the real estate in Mexico as part of the guarantee. We might ask
the parent company in Canada to provide additional guarantees until we are satisfied that we are properly covered.
Currently, we cannot consider anything.
Senator Massicotte: Why would the Canadian company object to that if it's prepared to give the guarantee wholly?
It must do it directly.
Mr. Halde: Every circumstance is different, and in some cases it is just simpler. I will give another example. Not long
ago, there was a relatively large hotel chain in Canada that wanted to open a hotel in England. We would have been
happy to help them directly deal with that piece of real estate in England but instead of that, we had to get them to
remortgage some of their property in Canada so they could access the funds. They then transferred those funds to the
European facility. In some cases, we have to take unnecessary extra steps.
Senator Massicotte: Are you allowed to provide a loan to a Canadian company with offshore security?
Mr. Halde: We cannot take offshore security.
Senator Massicotte: You cannot take it offshore.
Mr. Halde: That is what I am talking about.
Senator Kochhar: Is that not a function of EDC? Are you are trying to compete with EDC to put them out of
Mr. Halde: EDC is a capable organization, and we work them. Both have areas of expertise and we collaborate well.
In cases where they are more equipped to handle something, we are happy to make the referral and vice versa. What we
care about is that the entrepreneur gets what he needs.
Senator Hervieux-Payette: For our viewers, would you define "small business?" My colleague was asking if a hotel
chain would qualify as a small business. What is the definition of SME?
Mr. Halde: According to Statistics Canada, a small business has fewer than 100 employees; a medium-sized business
has 100-500 employees; and a large business has more than 500 employees. BDC's focus is on SMEs and the vast
majority of people we help qualify as SMEs. We have the odd larger one, but they tend to be the exception.
Approximately 76 per cent of our portfolio, or number of clients, have fewer than 20 employees. Our focus is on the S
and a bit on the M, even though we might do some larger transactions.
Senator Hervieux-Payette: There is no money reference in the definition.
Mr. Halde: The definition from Statistics Canada deals with the number of employees.
Senator Gerstein: I would like to go back to what I have heard in questions raised somewhat publicly and somewhat
In your presentation and what you have provided us with, the BDC corporate plan describes BDC's mission as
To help create and develop Canadian businesses through financing, venture capital and consulting services
with a focus on SMEs.
Section 4(1) and (2) of the BDC Act states:
The purpose of the Bank is to support Canadian entrepreneurship by providing financial and management
services and by issuing securities or otherwise raising funds or capital in support of those services. In carrying out
its activities, the Bank must give particular consideration to the needs of small- and medium-sized enterprises.
I believe that any changes to the Business Development Bank of Canada Act should focus on making the BDC more
effective in fulfilling its core purpose. That is why I wanted to read into the record both your mandate and the wording
of the BDC Act. This should be the touchstone in my view for our committee in assessing any proposed changes to the
You have talked about expanding a suite of financial services that you currently offer beyond loans, guarantees and
investments. Can you explain how these changes will benefit Canadian small- and medium-sized enterprises?
Mr. Halde: I will gladly do that. In my statement, as an example, I was explaining why it would be useful for us to be
able to lend money to the Canadian Business Youth Foundation. They are very close to small, young entrepreneurs,
and they are very efficient. We would love to be able to lend them the money so they can lend them themselves, versus
having to deal one-on-one with each very small loan that they do. Currently, we have to do it that way. It is not an
efficient way of doing this. With changes to the act, we could help entrepreneurs to get their money faster and it would
be more efficient.
As another example, the definition of "bonding" is not included in loans, guarantees and investments. As we know
in Canada, there is a bit of an infrastructure deficit at the federal, provincial and municipal levels. Entrepreneurs are
trying to bid on these contracts. It would be useful, in some cases, to be able to provide bonding services to the smaller
entrepreneurs that are having a tough time getting that done.
Those are just examples. Basically, the mindset should be the benefit of Canada and the accomplishment of that
purpose. Right now, we would wish to ensure that the words are looked at so that they provide more flexibility. That is
what we are asking for.
Senator Gerstein: That leads me to your ability to grant credit. When the chartered banks extend credit, their main
considerations have to be minimizing risks and maximizing returns. They look for a return on the invested capital.
During periods of economic difficulty, like the recent recession we have had, to what extent does BDC view itself as
a competitor of the chartered banks and therefore compelled to make similar considerations? Conversely, to what
extent is BDC — and I might say obligated because of the programs the government wants to put into effect — there to
step into the breach and extend credit to entrepreneurs for the good of the whole economy when the chartered banks
are reluctant to do so?
Mr. Halde: We are very happy, and we see it as our role, to step into the breach, to use your words. In a recession,
normally what happens is there is less demand for credit because entrepreneurs are careful, and so there are usually
fewer projects being put forward.
In this last recession we also had an access to credit problem. Not only did we have a recession, we had an access to
credit issue. We had to step up, and our lending went up 53 per cent in a year, when normally during a recession you
would have fewer requests. We assess risk very well, and we are comfortable taking risks. There are various measures
one can use, but we take about five times more risk than the average traditional financial institution.
We are profitable but nowhere near as profitable as commercial banks because that is not our role. We see it as our
raison d'être to help out in those situations, and we did that quite well in the last recession.
Senator Gerstein: You have emphasized the fact that you have had a success in returning dividends to the
shareholder, which you clearly have, and thus to the taxpayer. That is very positive. I would like to get more flavour of
whether too much emphasis on optimizing returns in difficult times, especially over the past year, could be
counterproductive to BDC's core mandate on standing up when small and medium business need credit and they
cannot get it elsewhere.
Mr. Halde: We perceive our role as being to maximize the help we provide entrepreneurs, subject to remaining
financially sustainable, because that is a Treasury Board guideline. We try to maximize the risk we take and the help we
provide. In the last fiscal year, if you have seen our annual report, our traditional profitability that was around $90
million to $100 million came down to $6 million which is pretty close to zero. We are about as close as we can get, and
that is because we wanted to step up and help the entrepreneurs.
Senator Gerstein: Is it a Treasury Board mandate that you give a return to the shareholder each year?
Mr. Halde: It is a guideline. Right now the guideline is that the return on equity be better than our cost of capital.
That is the request.
Mr. Hayward: If I may add a comment from the perspective of being a director, it is an independent board. We have in
camera meetings without management. We also take our fiduciary duties very seriously. It was a fascinating time to be
inside the bank and see how this complementarity role was played out and implemented.
Clearly, we cannot just simply open up the vault and say any small- and medium-sized business has free access to
any and all funds. The challenge we had as an independent board and working with management was to try to find that
sweet spot and understand what the risks were and fulfill our mandate while at the same time being responsible.
I come from business. In my last life, we were involved in lending to farmers across Western Canada. We had 30,000
portfolios that we worked with Scotiabank on in a partnership deal. I would say the risk management systems in this
organization are robust and the directors take their duties seriously in terms of applying the mandate.
Ironically and paradoxically, what happened during the recession and financial crisis is that the main chartered
banks pulled away from some of the credits they viewed as riskier. In fact for BDC, they were not as risky as some of
the normal credits that we would be looking at in more normal times.
My final point on this is that we as independent directors take this extremely seriously. There are committees of the
board that review the files carefully. There are points at which it has to go either to an investment committee or the
board in total, and I can assure you the systems and procedures that are in place on risk management are very robust.
Senator Gerstein: Thank you.
The Chair: You mentioned that your profitability — is that the right word — went from hundreds of millions down
to $6 million?
Mr. Halde: It was hovering around $90 million to $100 million generally prior to recession, and during the recession
year it went down to $6 million.
The Chair: Does that mean necessarily that you made more loans to SMEs during the financial crisis or does it mean
you did not increase the number of loans and the returns were poor because of the economic climate?
Mr. Halde: We increased the number of loans.
The Chair: Can you give me some idea of how much?
Mr. Halde: If you give me one second, I probably can give you the exact number.
We provided 8,000 loans to businesses in 2010, that is fiscal 2010 ending March 31, 2010, so it includes most of 2009.
You will remember that in a recession there is less demand for loans. That was an increase over the previous year of
about 300 loans. In a time of recession, we increased the number of loans we did and we increased the amount we lent
to try to step into the breach that Senator Gerstein was alluding to.
The Chair: Recessions have different characteristics, and I do not know whether this one was one where everyone
just pulled in their horns and sat on their backsides or whether it was one where people were scrambling for credit
because they could not get it anywhere else, as Senator Gerstein alluded to.
Mr. Halde: It was a bit of both.
Senator Ringuette: I am looking at your recommendations and would like to start with your No. 1 which is on page
4, and it has to do with partnering with organizations. What kind of control would you have?
Mr. Halde: We can establish with a lot of clarity what the requirements would be for us to feel comfortable doing
As another example: We have a relationship with the Community Futures Development Corporations (CFDCs),
with 220 of them. That is a way of extending our reach, mostly in rural areas. We work very well with them, and they
know when to refer something to us. They know what we will accept and what they can do. We have a good
relationship with all those various people. It would just make life easier and more efficient. That is all.
Senator Ringuette: Is that not sufficient?
Mr. Halde: At the present time, what happens is we end up having to do a loan for $10,000 when the Canadian
Youth Business Foundation could do that quite well as long as we agreed on the requirements, instead of the
entrepreneur having to deal with us. We are trying to simplify the life of the entrepreneur and make it more efficient to
them. That is all.
Senator Ringuette: In essence, all these organizations will become BDC subsidiaries.
Mr. Halde: No, I do not think they would ever consider themselves subsidiaries. They have their own raisons d'être.
They are soliciting this, by the way; we are not pushing this; they are asking for it. That is just one example.
The other one is bonding. Right now we are not allowed to do that, and I think some entrepreneurs would
appreciate it we could. We have been asked and right now we have to say, "Sorry, we cannot help you." I mentioned
the concept of trusts, and that right now we need special permission from the minister to operate that way instead of it
being a normal course of business.
Our only concern is that the present language, which is now 15 years old, is very specific. It is loan, investments and
guarantees. We might end up with carbon credits in the next decade and how do we deal with those? Do they fit into
loans and guarantees? We are just asking to widen the language a bit. We are trying to figure out what we will need for
the next 10 years.
As Mr. Hayward said, we have had many meetings with the board, scratching our heads and asking,
"What will this
country be like seven, eight years from now?" I will not be around; Mr. Hayward will not be around; but you will want
the next CEO and the next board to have the tools to help entrepreneurs. We are just saying, let us provide more
flexibility in the language. There will still be the review by the minister. The corporate plan still has to be approved.
There still are many checks and balances in the system, but let us provide them with wider language.
Senator Ringuette: On page 7, recommendation 4, you ask that the ceiling for paid-in capital be removed. That
means that you have attained that ceiling?
Mr. Halde: Yes, we have. We are about this far from the ceiling. The only reason we are suggesting this is to be able
to respond if, right now, the government wished us to do something quickly, if they wanted to buy shares, because the
way they do it is that they buy the shares of BDC. If the Department of Finance Canada wanted to do this, because we
have hit the paid-in ceiling, we would have to wait for the next budget or for some special provision to be made in the
House of Common. Right now we are limited. We can increase the ceiling and remove the cap. Perhaps Mr. Hayward
will talk about removing the cap.
Mr. Hayward: In our committee, we were looking at some of the restrictions and inflexibility of the current act. The
analogy could be that, in a public company, normally there is no limitation saying you can only issue 12 or 14 million
shares when you are looking at the issuance of common shares. In the analogous situation, the board would like the act
to be silent. That does not mean we are asking for money; we are simply asking to make it more efficient from a
logistical standpoint, so that if the government in its wisdom had good reason to subscribe for shares, it could do so
quickly and easily.
Senator Ringuette: I am thinking about that aspect of your recommendation and the demand that could be put on
your financial structure. I then look at your recommendation 3. Let us go back to your example of Mexico. We have a
Canadian company that incorporates a branch in Mexico. That incorporation is not a Canadian incorporation.
Mr. Halde: That is right.
Senator Ringuette: What legal means would you have in regard to getting a loan repaid?
Mr. Halde: It depends on the country you are talking about. There are countries, such as the U.S. or Mexico, where
you can actually take security on the building. There are other countries, obviously, where we would need to work with
EDC, where they have much more expertise than we would in doing this. We have a network of development banks
that we deal with. We are basically saying in some cases it would be appropriate to do so.
If a manufacturer in Toronto wants to open a distribution centre in Buffalo, just so that it clears the border more
quickly, right now we cannot support opening a distribution centre in Buffalo. We should be able to do that, just as a
normal course of business. If it is right for the Canadian business, assuming it helps them become more competitive,
and for all the right reasons, obviously, we should be able to do this. Right now we cannot.
Senator Ringuette: In regard to your lending capacity, if you have a Canadian business generating jobs in Canada
that requests a loan, and the foreign subsidiary of a Canadian business asks for the same amount of loan, with the
exact same conditions, employees and so forth, what would your priority be? Would you prioritize the capital that you
have in your loan portfolio to a Canadian business residing and creating jobs in Canada, or elsewhere in the world?
Mr. Halde: Candidly, we would try to do both. Obviously, the one in Canada would be of utmost importance.
Making our Canadian companies competitive is important. We have enough capital at the present time to be able to
help both. We are trying to help all entrepreneurs become as competitive as they can be. That is what we are trying to
do. We are trying to build capacity for our Canadian businesses. We will try to help both.
Senator Ringuette: Do you believe that the mandate that Senator Gerstein has just read to us should also include
creating jobs in Canada?
Mr. Halde: We perceive ourselves as helping businesses.
Senator Ringuette: You help businesses create jobs in Canada?
Mr. Halde: Hopefully, it results in creating jobs in Canada. I think the intent of the existing act, and it would
certainly be our thinking, is that first and foremost we have to help Canadian companies be competitive.
If they are really competitive, hopefully that will create the right number of jobs, but it should not be the only filter
by which we decide.
Senator Ringuette: When there is a foreign SME that wants to establish itself in Canada, are you open to loans to
Mr. Halde: Right now it depends to what extent that subsidiary's management is in Canada, to what extent
decision-making is done in Canada. If it will bring innovation, if it will bring technology, if it will hire people in
Canada, we would love to be able to help them.
Senator Ringuette: You mentioned that there are organizations similar to the BDC in other countries, so if there are
Canadian firms that wish to establish themselves in other countries they could seek the financial help of a similar
organization to the BDC?
Mr. Halde: I am sure they probably could, but I think they are first looking to their own government and financial
institutions to help them.
Senator Harb: It is not farfetched that if a foreign company comes to Canada and wants to create jobs in Canada,
the Government of Canada or the provinces will offer them money. In fact, just recently, a Taiwanese manufacturer of
microchips wanted to locate in Canada and two governments offered them hundreds of millions of dollars in terms of
What you are trying to do, in essence, is to obtain some flexibility, so that if there are situations where a Canadian
business is trying to branch out and needs assistance, you will look at the file. Now you cannot do that?
Mr. Halde: That is correct.
Senator Harb: By doing to so, it does not negate the fact that you will get as much security as you possibly can,
whether it is the head office or a side office or whatever that is.
Mr. Halde: We are still a bank, so we try to deal properly with the financial end.
Senator Harb: I have a question dealing with the change of names from the Federal Business Development Bank to
the BDC. The previous one had a long name; this one is shorter, nicer and a little more sleek. What are the glaring
differences between the two entities?
Mr. Halde: When we were the Federal Business Development Bank, we were a lender of last resort, which meant
that you had to have been turned down by financial institutions before you could apply for a loan. Since 1995, we have
been a complementary lender. This means we look at the needs of the entrepreneur and put forward an offer of
financing, being very careful not to be competitive, not to use the fact that we have access to relatively less expensive
capital. We are very careful. In our average portfolio, we price for risk properly. Honestly, we try to look for those
situations where most financial institutions are not comfortable. Cyclical industries like construction, forestry, fishing,
tourism are all good examples. We try to help in those areas where it is probably more difficult to have access to
Senator Harb: Really it is still a last resort to a large extent, because these industries may not be able to go to a bank.
You charge more than a bank, do you not?
Mr. Halde: We charge for risk, and so if it is a riskier loan, we will charge appropriately for the risk. At least we have
the opportunity of putting the offer forward to the business. It is working well and we are very careful to stay within
that complementary role.
Senator Harb: If the lender of last resort's requirement was to go back into the act, would that make you jump
Mr. Halde: Very much so.
Senator Harb: Jump negatively?
Mr. Halde: Absolutely.
Senator Harb: My final question deals with the different agencies that we have now at the federal level. In particular
we have Industry Canada with a pretty sizeable division, a small, medium enterprise division; we have the EDC which
you mentioned earlier; we have the Department of Foreign Affairs and International Trade; we have the CCC, the
Canadian Commercial Corporation; and of course we have CIDA. I do not know if they are still in operation or not.
To what extent is there a coordination that takes place when it comes to Canadian businesses that are trying to
prepare to go outside Canada in order to expand their horizons? Do you have any interaction with those agencies? If,
for example, the committee decides that they want to give you the tools that you need, would this be one of the things
you would run with and set up some sort of an interaction committee or coordinating committee with those agencies?
Mr. Halde: We already have a relationship with many of the institutions that you just described. We have a
memorandum of understanding with FCC. We work together to define what is their bailiwick and what is our
bailiwick. We have a good relationship with EDC; we cross-reference stuff with each other; we have linked our
websites; we have referral teams. They are different institutions with different markets and different expertise, and our
people who are in the field work quite well together. They know when to refer a file to the other folks because it is more
their expertise than ours, or vice versa, so it has not been an issue.
Senator Hervieux-Payette: Why have you subscribed $330 million to 23 private sector funds? Are there SMIs that
are in private sector funds?
Mr. Halde: No. These are venture capital funds. With venture capital, private funds invest in technology companies.
These funds obviously seek out financing. In the 1990s, it was rather easy for them to get financing, for instance,
through pension plans, but given the poor results obtained by companies that were full partners in venture capital, it
has been more difficult to find funds. So there are a number of funds, excellent funds, and we believe it is important to
support them privately. Assuming they raise $100 million, we could help them find financing by being a limited partner
and investing in the fund.
Senator Hervieux-Payette: Have you made profits this way?
Mr. Halde: To date, the venture capital industry has been extremely challenged. Today, the problem has to do with
loans. It is an area where it is quite easy to measure risk and profitability. Over the last few years, the venture capital
industry has not been profitable. So the answer is no, we lose some money with this.
Senator Hervieux-Payette: Do you have representatives sitting on the boards of these funds?
Mr. Halde: Yes, but it is difficult.
Senator Hervieux-Payette: I am aware of the shortage in funds for venture capital. I am not saying this to blame
you, but to say that $330 million is a small amount when compared with the total funds you manage. I do not see any
other tool the federal government could use. I know that, for a while, you dealt with the Caisse de dépôt, something
you know longer do. Why is it that your recommendations do not include consolidation for companies in this area
rather than to have them be indebted to their bank and to you, so they may also have a partner and better financial
health, fewer debts and a better ratio?
Have you looked into this, Mr. Hayward, at the board? You reflected on "no limits," yes, but what will you do when
you have no limit? Why do not you enter into this sector which at this point is doing poorly from coast-to-coast?
Mr. Halde: Let me attempt to answer your question. What we focused on in the document you received was changes
we consider important. At this point there is absolutely nothing to prevent us, under the current act, to invest more
than $330 million in private funds. So, we did not mention it in the document you received simply because the current
act allows us to do this. The question is the following: Is it the right thing to do? We believe that in order to bring
venture capital to a level where funds are profitable, we must now invest in the most competent funds. We need to
invest in those that have expertise, where funds are large enough to do good work.
In fact, this afternoon I was speaking with a person who is responsible for investing in these funds, and we are trying
to see how we could do more this year than we did last year.
You are absolutely right, we need to be involved in venture capital, but we did not raise the issue because doing so
would not require any changes to the act. We would simply need to decide to do so more than we do currently.
Senator Hervieux-Payette: My second question deals with investing in foreign companies abroad. I am responsible
for the Americas, in other words 35 countries. I look at their financial health, the evolution of their currency. I think of
Argentina, for instance; I believe that at one point mortgages were not worth very much over there. You refer to
Mexico, a country that I know because I have been going there for the last 25 years. Who is going to take a risk on the
rate of exchange? Would you be lending Canadian dollars and be reimbursed in Canadian dollars? We do not control
the rate of exchange. Mortgages represent considerable sums of money. Would you be assuming the currency risks?
Mr. Halde: It is possible to quickly do a financial exchange that freezes risk. We are quite conscious of risks.
The Chair: Is that general policy?
Mr. Halde: Yes, absolutely. Always. We take no risk.
Senator Hervieux-Payette: On the currency.
Mr. Halde: On the currency.
Senator Hervieux-Payette: This year your loans increased by $4.4 billion. I examined the documents you provided
when we met with representatives from the bank. The two points dealt with long term loans and commercial mortgages
— and this is partly for the benefit of my colleagues, as I have had additional briefings sessions — and I was told that
this year you had played a more proactive role with the major banks on mortgages and that you took on close to $3
billion, in other words over a billion for long term loans and commercial mortgages as well.
In other words, there was a dialogue. I would like to know how you work with the banks in this regard, because the
banks have had some liquidity problems. They sold a mortgage portfolio of close to $70 billion back to the federal
government. You have some too. Was there an exchange? How did you that? Or was it quite simply that banks referred
them to you as they had reached their limit?
Mr. Halde: It should be said that we finance projects, so when an entrepreneur consults a bank, during a recession,
on a project, if the bank finds the risk too high, for any number of reasons, it provides a wonderful response, in other
words it refers these people to us. It is of course a great pleasure for us to do the work so long as it makes sense. It is
because of these referrals from financial institutions that last year we lent much more than we usually do. We have
done very good work with them.
Senator Hervieux-Payette: I would like you to rethink your argument on removing the ceiling for capital. Last time
there was a change to your limit I was a member of committee and it was done within a matter of a week. So, it can be
done quite easily. We remain responsible to the Canadian public and it does not look very good if the bank has no
limit. It is like a blank cheque. Even though you look like fine people, I think it is a hard sell.
Mr. Halde: I have two comments, if you will allow me. Let us begin by taking a step back. Our three main
recommendations are to offer a broader range of financial tools, non-financial tools, and to enhance support abroad.
We have also provided a few other recommendations. The one relating to capital, to raise or eliminate the limit, is
simply to facilitate matters financially. Sincerely, the first three recommendations are far more important than this one.
We could still increase the limit, it would be the Minister of Finance, with cabinet and others, who would decide
whether or not funds are injected. That is not within our purview. We do not have the capacity to ask the bank to do
so. It is simply to say to the government: if it can be useful to you, remove it, you could then invest when you want to.
If you look at all of our recommendations, the first three are the major ones; this one, we believe would be useful.
Senator Hervieux-Payette: What if we were to broaden the base so as to review this issue. We have not seen you in
15 years. I believe that even if the Minister of Finance deals with it in each budget — we had legislated on that point —
you have reached the limit, you have good cruising altitude. We can project and then say: according to you, what
would be a realistic new ceiling? The minister legislates in January, February, under the act. I do not know what my
colleagues think of this, but I believe we need to be responsible towards the Canadian public.
Mr. Halde: The alternative would be to set a reasonable limit for everyone.
Senator Hervieux-Payette: I am thinking of a five-year time limit. Between you and me, it would do no harm to see
you more frequently.
Mr. Hayward: If I may, Mr. Chair, when the committee met in considering proposed changes to the act, we had a
similar kind of conversation. The limit has been changed several times and we reached the point of saying that we
should take the ceiling away. We are not asking for more capital. The dialogue within our committee was such that we
could try to specify a number, but how would we even know what that number should be? If history is any guidance on
this, we had no idea what we would have needed two years ago or five years ago. Effectively we are saying this from a
good governance and efficiency standpoint because we are also asking to put it in the act that we are financially
sustainable, so we are looking after the public interest. We are saying from an efficiency standpoint to make it cleaner
for us to allow the government to subscribe for shares, if there is a need to do that quickly.
Senator Hervieux-Payette: You are in the Public Accounts of Canada. Whether we show you as $50 billion, $150
billion or $1 trillion makes a difference. Even though you have a prudent administration, this is also money at risk. We
are just coming out of an economic crisis, and we know what it means. We have not gone out in terms of ensuring
strong fundamentals for the future; we are not there yet.
Mr. Hayward: The board and the committee would agree heartily with you. We are looking at it from the point of
view that we have good governance, according to the Auditor General's special examination of governance. We think
this is probably a better way of doing it. That was a suggestion of the board.
Senator Moore: I will follow up on Senator Hervieux-Payette's questioning with regard to the paid-in capital and
your comment about good governance. It is our job, as parliamentarians, to exercise the same good governance when
dealing with the public purse. This is not like a private bank where your people are taking a risk. This is the public's
The paid-in capital was increased to $3 billion, and the act puts a limit on your borrowing and guarantees of 12
times that, which equals $36 billion. Is that the limit you are talking about in the fourth item?
Mr. Halde: No. We have various ratios for capital, depending on which activity of the bank one is talking about.
When we invest in equity and venture capital, every dollar of investment uses up a dollar of equity. When we do
subordinated financing, because it is only partially guaranteed or little guaranteed, we allowed $4 of lending per $1 of
equity. A typical loan is $10 of lending per $1 of equity. Depending on the mix of how we perform our operations, we
use more or less capital. I am not sure if that answers your question.
Senator Moore: Somewhat. It says that the act puts a limit on your borrowing and guarantees.
Mr. Halde: Yes.
Senator Moore: Beyond the cash that you have by way of paid-in capital from the Government of Canada of $3 billion,
do you borrow other monies?
Mr. Halde: Yes, we do that.
Senator Moore: From whom?
Mr. Halde: Generally we borrow from the central consolidated office in Ottawa.
Senator Moore: Is that the Consolidated Revenue Fund?
Mr. Halde: It is the Consolidated Revenue Fund. Basically, we get the Department of Finance Canada to agree once a
year on our borrowing plan, which they have to approve. There is a good system of checks and balances by Finance to
ensure that we are in sync.
Senator Moore: The maximum amount can be 12 times the paid-in capital. Is that correct?
Mr. Halde: The act allows up to 12 times the paid-in capital but because of what I described earlier, we might not reach
Senator Moore: I understand that because of the various types of investing or loans made.
Mr. Halde: Correct.
Senator Moore: In 2008 when we were starting off to try to get a handle on the financial downturn, two lending
programs were set up — the Canadian Secured Credit Facility and the Business Credit Availability Program.
The information I have says that you were authorized to purchase up to $12 billion of Canadian AAA-rated term
asset-backed securities and that up to March 31, 2010, you made five such acquisitions, totalling $3.65 billion.
What kind of acquisitions were those and in what amounts? You may not have this information here today and
want to send it in, but I would like to know what they were, the amounts of them and the payback schedule. Were these
blocks of mortgages or what were they?
Mr. Halde: I am happy to provide you with the information.
The first transaction was closed on November 30, 2009, for $300 million. Basically, what we purchased there was
dealer floor plan receivable backed notes from a company called CNH Capital. That is to support equipment
Senator Moore: Was that for construction equipment or farm equipment?
Mr. Halde: It was for construction equipment, all types of equipment. That is the first transaction.
The second transaction was with GMAC, where we purchased vehicle loan receivables backed notes for $1.263
billion on January 19, 2010.
The third was for $91 million at the end of January, for fleet lease receivables backed notes from a company called
The fourth was with GMAC again, for $1.7 billion, for dealer floor plan loan receivables backed notes.
Senator Moore: When was that?
Mr. Halde: That was on March 25.
The last one was April 9. The transaction was for $300 million, and it was for retail vehicle lease receivables backed
notes from Nissan.
Those were the five transactions that totalled $3.65 billion.
Senator Moore: In terms of getting this money back, over how many years on average will it take?
Mr. Halde: It is a monthly payback. On average, for the five deals, it is somewhere around 48 months. Obviously we
are tracking this very carefully, and up to now, the good news is that we are being repaid properly every month. There
is no reason to think that we will not be properly repaid till the end.
Senator Moore: Are all these companies Canadian, CNH Capital, GMAC, PHH?
Mr. Halde: They are Canadian subsidiaries of foreign corporations, like Nissan. They do business in Canada and
this was to help them provide cars and equipment and so on.
Senator Moore: The second lending program was the BCAP You were authorized to provide $5 billion and you
provided at the end of March $2.75 billion. Were they individual transactions, or how did that work? For our benefit,
and that of the public who may be watching, I would like to know how this works, when we are looking at getting
taxpayers' money back.
Mr. Halde: I mentioned earlier that during the recession we were fortunate that the financial institutions referred a
lot of the lending that they were not prepared to do to us.
The government had asked for BDC, EDC and the financial institutions to work together to provide ideally in
excess of $5 billion of lending. We, at our end, were able to do $2.7 billion — I am going by memory — of lending in
something like 14,000 individual transactions to SMEs. This is lending to an SME for a project, whether opening a
plant, buying equipment, working capital or helping them with their projects. We were very pleased that we were able
to do that. I think it was required at the time.
Senator Moore: Those transactions were referred to you by chartered banks? They were not prepared to do this?
Mr. Halde: Mostly, they would have been. Many of them would have been referred; not all of them. What the
government asked us to do was to increase access to credit. In some cases, it was our own client; they were struggling a
bit and we put our foot forward to help them go through a tough time. In many cases, they were referred by financial
institutions. It is a mix of a number of things, but I think it was 14,000 transactions at our end of BCAP. We were
pleased with that.
Senator Moore: I thank you for the information. I am old-fashioned. When people want to borrow the kind of
money you are dealing with, I think you should have to come to Parliament to tell us why you want more. We will look
at it. It is usually justified, and we would approve it, but I do not think you should have an open cheque.
The Chair: Mr. Halde, do you keep statistics of the number of applications and the number of loans granted?
Mr. Halde: I do not believe we keep statistics on the exact number of loans. Many of these discussions are a bit of
informal: "I am thinking of this" or "We probably need this" or "I will think about it and I will come back." It is not
really a loan application. I could check, but I do not believe we keep statistics of the type you are thinking about.
The Chair: You might let me know. I would be interested at some point in your answer if somebody said,
"I had a
terrible experience with BDC. They would not even talk to me and they are really tight. I tried to get a loan and I could
not." Frankly, I have heard some people say that. I have heard it about banks as well.
What ammunition do you bring to answer that?
Mr. Halde: The only thing I can reply is that we try hard to help entrepreneurs because that is our role. We want to
make this thing happen. As I said earlier, we take five times more risk than traditional financial institutions, but at the
end of the day it has to be a creditworthy file. In some cases, we have to say no. People are not always pleased when we
say no. However, it is our role to help them, so if we can, we will.
Mr. Hayward: From a board perspective, we regularly hear and are advised about what our customer satisfaction
rates are, so we are monitoring those.
Senator Greene: I wanted to get on to that and now that the issue has opened up, I will ask a supplementary.
I am surveyed by my bank all the time as to whether I like them as a business. I am also asked by pollsters all the
time about my attitude toward the Canadian financial system and Canadian banks, et cetera.
Do you conduct public opinion surveys or do you conduct surveys amongst SMEs, amongst businesses that are
customers of yours and that are not?
Mr. Halde: We use an outside third party, so that it is absolutely objective.
We survey, and I am sorry I do not know the exact number, but it is thousands of clients every year. It is thousands
and thousands, so the sample is way beyond reproach.
We have been doing this for at least the last decade, that I am aware of. Client satisfaction in fiscal 2010 was 91 per
cent and in fiscal 2009 it was 92 per cent.
Senator Greene: Could we have copies of those surveys?
Mr. Halde: I would be happy to provide you with those.
Senator Massicotte: Thank you to the board and to management. I think that BDC has had a very important role to
play in a relatively difficult period over the last two or three years. As an observer, I would say that you have
contributed significantly to our country and I thank you for it.
I know you would like to concentrate on amendments to improve your authorities. I would like to take a step back
in time as Senator Gerstein did. We will be hearing from witnesses who disagree with you. I want to play the devil's
advocate and give you a chance to reply before the question is put.
To start, some individuals, myself included, believe that we need to reduce the role of government, that the market is
always more effective, more profitable and adequately meets the needs of consumers when market conditions
themselves are adequate.
My starting point would be to say that if the market can satisfy the need you fill, you should not exist. Which leads
us to this debate. The bank asks: is there not enough competition, not enough players in your sector? If the answer is
yes, then there is a role for the bank to play. Have studies been done on this?
In Canadian market studies on, for instance, credit cards, there is a great deal of non-foreign competition. Are there
external reports that support the idea that in these sectors — the SMEs being your specialty — there is a lack of
competition, of services, thereby justifying the existence of the bank?
Mr. Halde: We had several studies that clearly show that there are credit access problems, especially for certain types
If you are a company in the knowledge sector, where there are few tangible assets and you wish to obtain some
money to grow, obtaining a loan is quite difficult. If you are in a cyclical industry, it is quite difficult to obtain access to
credit owing to a low comfort zone.
Many studies show that, from the entrepreneur's point of view, there is a problem with access to credit. This is more
true in certain regions, in certain industries. We think about the matter from the industry point of view. I do not think
that we can hypothesize that each financial institution, when it is thinking of its wellbeing and what is right for it, in a
word: collectively, does that mean that it will be perfect for the market at all times? I do not think so. Our role is to try
to fill in the weaknesses of the market.
Senator Massicotte: I do not know if we should try to achieve this. That is the market, when an opportunity arises,
there is a competitor. Nevertheless, if the other financial institutions are not making these loans, because they do not
provide them with enough profit or they are not profitable enough, that is not a good argument. Neither should you be
doing so, if the company is not profitable.
What calculation do you use? Is it in the interest of Canada to make such a loan which ordinarily would not be
profitable? It is very difficult to put this argument forward.
Mr. Halde: I am not in complete agreement with you. I am not talking about being unprofitable but a little bit less
profitable, in certain cases, because of the risk level. However, unlike the financial institutions, we price for risk. For
us, a risk will bring Senator Ringuette jobs, economic activity. We think that it is worth doing this, if we believe that,
by year's end, the overall portfolio will be profitable.
Senator Massicotte: I will accept this argument. For the past five years, your equity performance has been 8 per cent
whereas that of the banks is closer to 20 per cent. For your, this is before taxes, I am presuming that you do not pay
taxes. For them, it is after taxes.
Mr. Halde: That is correct.
Senator Massicotte: I am calculating the difference between the two of you. Do you pay the guarantee costs for
government loans or is it really the cost price?
Mr. Halde: The loan is given at preferential rates.
Senator Massicotte: When I make these two calculations, your performance is lower than that of the banks and, as
far as the cost of the loan guarantees is concerned, there is a direct subsidy of $1 billion. Consequently, given that the
benefit to Canadians in making these loans is less than the others, is it worth the $1 billion to Canadian taxpayers?
Mr. Halde: What I can tell you, and I said this in my opening statement, is that the businesses we support have sales
of $174 billion. In Canada, this is not an insignificant amount.
Senator Massicotte: The hypothesis is that nobody else would make the loan, as was the case in the old days.
Mr. Halde: They always have a financial institution. We only finance projects. All of our clients do business with a
financial institution. They have a loan that we do not give. We do not provide long-term loans, however our clients as a
whole have revenues of $174 billion. Significant economic activity results from this money.
Senator Massicotte: Would it be possible to receive an independent report to confirm that? For example, this
committee studied the Canadian market a few years ago. From what I remember, experts had concluded that SMEs
and rural clients suffered from a lack of services. I am providing you with more arguments. We would appreciate
receiving even a single copy of those independent reports.
I have two specific concerns: your venture capital and consultations. On the venture capital side, it has been noted
that you have lost between $20 million and $100 million a year over the past five years.
Mr. Halde: That has been dreadful.
Senator Massicotte: That says something; alarm bells must be ringing: is there really a role to be played there? You
are not in the business of losing money. Look at some of the things your competitors have to say: they would like to
invest; there is no lack of capital, but a lack of investment opportunities. Why invest in that sector when there is
already a lot of capital available?
Mr. Halde: We have just completed a very lengthy analysis with McKinsey on the venture capital sector in order to
understand the nature of the VC beast. A number of years ago, we were asked to stake out a role in venture capital in
order to support the commercialization of Canadian technology. That is why the bank was mandated to enter the
venture capital sector; and so it is an important part of our mandate.
What our analysis has shown — allow me to give you a brief overview of the venture capital industry, our present
situation and, if you will, where we think we are headed. There are not enough venture capital funds, not enough
money today going into venture capital because pension funds no longer want to deal with that asset class.
The other source of money was the Labour Sponsored Investment Funds, and we all know that most provinces have
put an end to those funds. As a result, what we have today is a lack of capital from traditional sources.
The reason why those sources dried up is because the returns yielded by general partners were not good. We invested
in 23 funds, and in many cases the returns were unacceptable. Why? Because many of the general partners were clearly
too small in size. We had general partners that were probably not as savvy or competent as they should have been; they
did not have connections at the international level. They also did not know how to quickly put an end to a bad
Unfortunately, there is a shortage in Canada of repeat entrepreneurs who know what they are doing in the venture
capital sector. Many general partners had not set aside enough money to maintain their businesses until such time as
they became cash flow positive. There were many problems in the industry.
What is the situation today? Frankly, I think that most funds that have had size or competence issues will not be
able to secure future financing.
On the positive side, we are starting to have funds that are quite sizeable. The bank has helped set up the Tandem
fund, a $300 million fund that has now increased to $500 million. We are starting to see specialty funds in Vancouver's
digital economy and Toronto's water infrastructure, for example; these are funds that focus on niche sectors. I think
that the industry is getting back on track, but it has gone through some extremely difficult times. In all honesty, too
much money probably went to people who might not have had all the expertise to manage it; but I think that the sector
is getting back on track.
Senator Massicotte: I would like to respond to that. I am looking at the comments that were made during your last
review of the BDC; the same issue of risk or venture capital had been raised, and the committee was made aware that
there had been problems, which would be rectified, but that a lot had been learned and things would turn out to be
profitable. And yet five years later, we are hearing the same arguments: there are 23 funds, and people did not know
what they were doing, but now things will turn out all right.
Mr. Halde: That is a good point. Please note, however, that I was not there five or six years ago — I am not sure
exactly what period you are referring to — and I cannot comment on that. I think that all stakeholders have come to
understand a certain number of things: we need entrepreneurs who understand how to grow businesses internationally.
I am referring to general partners, people with a great deal of skill with funds of a certain size and who can help us do a
good job. Everyone in the industry has come to realize a certain number of things.
Senator Massicotte: If I may briefly touch upon the issue of consulting services, I have the impression that there are
tonnes of accounting firms in Canada that are active on that front, as well as a myriad of independents, retirees and
others. I would not have thought that there is a consulting void in Canada, and that we need a Crown corporation to
offer such services in the sector. And now, you not only want to offer consulting services, you want to expand them and
offer technological consulting, et cetera. What is your reaction to that?
Mr. Halde: I would first say that many of those services are delivered by private consultants. On average, we offer
$10,000 mandates. That is not something Price Waterhouse or Deloitte would want to bid on. We are talking about
independent consultants. As we see it, our accounts managers meet and discuss with entrepreneurs. They will identify
needs and suggest to them that they rethink their marketing strategy, business plan or other key element, and then
introduce them to someone with the required expertise. In many cases, they will refer them to independent consultants
who work on our behalf, although we do assume liability because they are people whose work we appreciate. That
said, we employ many people from outside the bank; and they often use our methodology.
Senator Oliver: My first question relates to your Recommendation No. 5, in which you recommend strongly that
there be minor housekeeping changes to the sections on governance. I am interested in the issue of governance. In
response to someone else who raised this, you said, "to give board committees some decision-making power." When
asked what that meant, you said that you want wider language.
What language do you want and to cure what problems? What other housekeeping things would you like us to look
You said you have a robust risk analysis and assessment basis and that in the fiscal year 2010, you had 300 more
loans than the previous year for a total of 8,000 loans. What percentage of those 8,000 loans in 2010 are bad, distressed
or problem loans? How does it compare to the fiscal year 2009?
Mr. Hayward: As was alluded to in another answer, we are looking for three main things from the point of view of
the act in its entirety.
Senator Oliver: I am talking about corporate governance.
Mr. Hayward: To your specific question, I am on the audit committee of the bank as well as the human resources
committee. There are instances where it may be appropriate for the committee to be able to make a decision with
respect to a particular compensation issue that necessarily comes before the committee but does not need to be
subsequently put before the board for final approval. There are numerous mid-range issues that are not necessarily the
purview of the board, which meets for two days on a quarterly basis.
Senator Oliver: Why do you not just make a recommendation? You should do your analysis, make your
recommendation to the board and let the board make the decision as boards should do.
Mr. Hayward: We are asking that the board be able to delegate on an issue that it feels appropriate. If the board
does not think an issue should be delegated to a committee, it will not do that. If circumstances change such that the
authority should be rescinded, the board would do that.
Senator Oliver: Do you have language that you want us to look at in consideration of your request for these
Mr. Hayward: I do not have that in front of me.
Senator Massicotte: If I am correct, the act gives you the authority to delegate as much as you want as the executive
Mr. Halde: We do not have an executive committee.
Senator Massicotte: You should get one.
Mr. Halde: I can assure you that in some cases an executive committee is a board within a board, so we try to be
careful about that. We would rather that each committee have its specific tasks than have an executive committee.
Senator Oliver: In terms of corporate governance, you said that you have directors meetings without management.
You also have self-evaluation programs for the board. Do they evaluate themselves? Is it rigorous? Do you have
training on financial literacy for all members of the board on an ongoing basis?
Mr. Hayward: I do not recall that we have had self-assessments, although the board went through a thorough
assessment with an outside party about one year ago.
Senator Oliver: There is no self-assessment?
Mr. Halde: Prior to Mr. Hayward's time, the board did yearly self-assessments. A couple of years ago John A.
MacNaughton, BDC's Chair of the Board of Directors, suggested that instead of doing the self-assessments, we use an
outside party that specializes in board governance to help us with a questionnaire, with talking to the board members
and with interviewing them. It is more rigorous than a self-assessment.
Mr. Hayward: To your second point on financial literacy, periodically we have had fairly meaty sessions where the
board in its entirety is receives a presentation from a member of management. To use the example of risk management,
we had a detailed session with André St-Pierre, our Senior Vice-President for Credit Risk Management, where we
received a great deal of information as to how the organization assesses risk.
Mr. Halde: Can you reframe or repeat that question so I can provide you with the information?
Senator Oliver: In fiscal 2010, you had 8,000 loans — 300 more than the year before. How many of those are
depressed problem loans and how many have failed? How does that compare to fiscal year 2009?
Mr. Halde: We do not look at it that way. I will try to provide you with some background.
Senator Oliver: Do you have loan-to-loss ratios?
Mr. Halde: Yes. When someone does a project, generally it is three to four years following the end of the project that
most of the problems tend to arise. Either the project worked or it did not work. In the first year of a loan, the loss is
quite low. That must be measured, which we tend to do on an overall portfolio basis of the bank, not necessarily on a
The loss rate for fiscal 2009, which is the write-offs and the specific provisions, is 1.81 per cent of $15 billion.
The total provision, which comprises specific and general provisions, is in the neighbourhood of $700 million, I
Senator Massicotte: How does it compare to the banks?
Mr. Halde: It is about five times higher than that of the banks in terms of risk. I have the numbers because I thought
someone might ask.
Our total provision currently, both general and specific, is at $785 million at the end of the last fiscal year, on $15
billion. That is 5.2 per cent. If you look at most financial institutions, the same number would be around 1 per cent.
Senator Oliver: Have you done a breakdown of those losses to see if they are in particular sectors?
Mr. Halde: We have an incredible database that we can slice and dice by industry and by region. Whatever your
heart desires, we can provide that information to you.
The Chair: Thank you very much, Senator Oliver and Senator Massicotte.
Senator Poirier: I have one or two questions along the same lines. It looks like you would like to be involved more in
international markets in order to be able to provide financing to Canadian companies that may be wanting to set up
subsidiary companies outside Canada. I thought that was what the EDC is doing now.
You mentioned earlier that you are working in close collaboration with the EDC. Why do you feel that you need to
compete, to play the same role as the EDC? Is it because they do not respond to the same type of businesses or they do
not respond to the small- and medium-size businesses in Canada?
Mr. Halde: So we are clear, we have no intent in duplicating offerings. That would not be good for efficiency or for
Canada. Our clients generally have different needs. We work well with them. We worked well on BCAP. We hold joint
client events now as we speak, but we do have different expertise.
To give you a sense of some of the differences, basically, we are a business development bank. We try to build
capacity and do consulting and help them grow their businesses. EDC is an export credit agency. They do a lot of trade
financing, they have incredible expertise on country risk, and so on, which is an expertise that we do not have. Our
focus is SMEs. That is the vast majority of what we do. We have a tremendous reach in rural areas, and so on.
EDC is different. They have 16 offices and not over 100 offices. We are kind of the commercial banker and they are
kind of the corporate banker. Not long ago they issued quite a large loan, $1 billion. We are not in that sphere. It is
more in terms of we work on their expertise and they rely on ours. We do a lot of real estate financing, because we
finance a lot of plants and distribution centres, and so on. They are more into providing corporate facilities and bank
guarantees. We are in different spaces.
Senator Poirier: You are telling me that they would not look at any of your clients?
Mr. Halde: They would look at some, I am sure. Hopefully, we will refer some to them and they will be happy to
look at them.
Senator Poirier: Could you also tell me how you feel Canadians would feel having their tax dollars being provided
for capital outside of Canada?
Mr. Halde: I think it is about helping our Canadian companies grow. We need to be more competitive. If we can
help a Canadian company get bigger, stronger and more capable in this world, which is more and more international, I
would like to think that is a positive thing for Canada.
Senator Poirier: Even though the subsidiary company would be outside of Canada? That means both the job
creation and the money generated would not be in Canada. It would be in Mexico, as you said a moment ago, or in any
other country. You feel that the Canadian taxpayers would still feel okay with that?
Mr. Halde: If it was explained to them properly, I believe they would.
By doing this we have a Canadian company that will be more profitable and will be able to participate in global
supply chains, as in the example I was providing earlier. It will make them more competitive and will expose them to
different ways of doing things and to be sharper on a world scale. It will make them more resilient. Over all, it is good
Senator Poirier: Over all, you feel that without that authority, there is no other avenue out there for these businesses
to be able to expand outside of Canada?
Mr. Halde: I think there would be cases where it would be difficult for them to get financing and we would love to be
able to help them, if we could.
Senator Poirier: In your first point you talked about lending money to the Canadian Youth Business Foundation so
that they could have the ability to deal sometimes with smaller loans such as the $10,000 loan. Who takes the risk? Is it
you that takes the risk? Is it the Youth Business Foundation that takes the risk?
Mr. Halde: We would take the risk within certain parameters and they would operate that. This is something we
would review with them on a regular basis. It is just to be more efficient, that is all. We are doing it now, but it is more
complicated for the entrepreneur.
Senator Poirier: Since you are taking the risk and giving the authority to them to approve the loans, I am assuming
that you would give them a limit to play around with?
Mr. Halde: They would have a limit and pretty strict guidelines.
Senator Hervieux-Payette: For the comprehension of everyone here, unlike banks, you do not have to return a
certain amount to shareholders. When the banks borrow, they must respect a certain ratio. These are the new rules of
Brazil that will apply in some years. You are not bound by these rules. I think it is important that we understand where
the money that you are lending is coming from — that is, the mechanism. How are you authorized to lend $15 billion?
My colleague was talking about taxpayers, but it is not taxpayers' money. I think it is important to know that it is not
money that we take out of the general revenue of Canada and put in your bank.
Mr. Halde: No. Thank you for asking the question.
Senator Hervieux-Payette: It is important that we understand the mechanism between finance and where you get the
money that you are lending.
Mr. Halde: On your first point, we try to calculate economic capital because we want to follow best practices. While
we are not regulated by the Office of the Superintendent of Financial Institutions, we follow all of the best practices.
We calculate economic capital, and all that good stuff.
In terms of how the balance sheet of the bank operates, which is your question, we have a pool of equity that is
made up of the injection of capital that comes from the government, buying shares of the bank. There are our retained
earnings, which is the accumulated sum of the profits over the years. We then borrow from the government a certain
amount of money that we then turn around and lend.
The Chair: At commercial rates? At what rates do you borrow?
Mr. Halde: I am afraid to make a mistake. It is a treasury rate.
Senator Poirier: There is still a risk there for the taxpayer, though.
The Chair: Sure. If you went bankrupt, that equity would vanish, would it not, that money that the Government of
Mr. Halde: There is always a risk, I guess. The last 15 years have shown that we have been profitable and we have
been adding to our retained earnings every year. We are very careful because for ratios that I described earlier mean we
need a dollar of equity for a dollar of investment. We can only lend $4 of subordinated financing for every dollar of
equity. There are conservative guidelines by the Treasury Board so that we cannot go crazy and lend more than we
Mr. Hayward: On a quarterly basis, at minimum, as a board on behalf of the Canadian public, we are performing
our fiduciary duties to ensure that the appropriate best practice risk processes are being followed.
Senator Mockler: Yesterday evening, the Senate Standing Committee on Agriculture and Forestry heard from John
Thompson of the Toronto Dominion Bank. Mr. Thompson told us that the bank today had far more branches in the
United States than in Canada.
When I look at what you are asking us to consider, I am wondering whether you are not trying to compete.
Mr. Halde: No.
Senator Mockler: Mr. Thompson also said that there was a blatant lack of venture capital funds for Canadian small
and medium enterprises. Will what you are asking us to consider improve the state of the venture capital funds sector
for Canadian small and medium enterprises, given that you want to operate in markets outside Canada?
Mr. Halde: I will try to respond to your questions. First of all, no, our role is not to compete. We are asking that our
legislation allow us to play a complementary role. We have no intention to compete or to open branches outside
With regard to venture capital, you have to be very careful, because there are two definitions. There is risk capital,
which is essentially equity invested in an enterprise, regardless of the type of enterprise. If someone wants to open a
print shop or a plant in whatever industry, that will require risk capital. In our view, venture capital is used to assist
enterprises in the area of technology, life sciences, IT, telecommunications as well as clean technology, but that is
different from the more generic risk capital. If you want to start a business, you need some seed money. We are limited
to sectors where there is significant technological risk, since the government mandate was to assist in commercializing
Senator Mockler: When I look at how you want to redefine your responsibilities, I am also reminded of what Mr.
Thompson said about there being a glaring lack of mentorship in Canada.
Mr. Halde: Yes.
Senator Mockler: That being the case, will your proposals improve mentorship for small and medium enterprises?
As well, could you provide us with the percentage of loans that you have made, between 2008 and today, to one of the
industries that is now most at risk, i.e., the forest industry, as well as to agriculture, and provide us those figures for
each of your regional portfolios?
Mr. Halde: You have a number of questions there.
Senator Mockler: You can provide a written response, that would be easier.
Mr. Halde: I would be pleased to do so. If I may take a few seconds, I could give you some information on the forest
Senator Mockler: Mr. Chair, can the witness provide us with that information?
The Chair: Of course. We do want to give 30 seconds to Senator Ringuette.
Mr. Halde: I will send you the information.
Senator Ringuette: I read an article this week which stated that executives at Canada's chartered banks will see an
increase in their bonuses this year because their returns were over and above their expectations.
Does the BDC offer bonuses to its employees?
Mr. Halde: Yes.
Senator Ringuette: Do you have a bonus system for all your employees or for only a select group? What is the
amount of that envelope on an annual basis?
Mr. Halde: Bonuses are tied to performance. Bonus percentages will vary depending on people's positions. People may
receive 10 per cent, 15 per cent or 20 per cent of their salaries, but that is all tied to performance levels established at the
beginning of the year. It is difficult to answer, but our bonuses are performance related and paid out in small percentages
of people's base salary.
Senator Ringuette: And what is the bonus envelope?
Mr. Halde: I honestly do not know. We have 1,800 employees. And so there is a given percentage for 1,000 people,
and another for 300 people, et cetera. Therefore, I would have to do the calculations, but I would be pleased to provide
you with the information.
Senator Ringuette: I would appreciate that.
The Chair: All that remains is for me to thank you for appearing this evening. We have had an excellent discussion.
Unfortunately, our time is up.
That said, I will adjourn the meeting and wish you a good evening. We see each other tomorrow.