It’s not the banks I hate, it’s their fans

$39.8 billion: That’s how much Quebec’s Caisse de dépôt et placement lost in 2008.

After watching a quarter of its total value vanish into the ether, the Caisse naturally opted for the most reasonable course of action—it sought to reinsure nervous investors by preaching and exercising extreme caution in the face of what could very well have been a devastating economic and political crisis.

Wait, you didn’t believe that did you? Has AIG taught you nothing about the world of high finance?

What the Caisse did was throw themselves a big, expensive Christmas party—an even bigger one than the year before, when they’d registered a gain of 5.6%.

Of course, it’s not like the $56,099.31 they spent on food and drinks would have made much of dent in the investment fund’s bottom line. (Besides, a company rep insists that a “large portion of the total cost of these evenings was paid by the employees themselves.”) And you can hardly blame them for wanting to close out 2009 with a drink or twelve. Still, there’s something unseemly about doing it at a swanky, open-bar party for 500 people at Windsor Station, especially in light of what was going on around them.

In the days leading up to the party, three leading managers at the Caisse wrote an anonymous letter to media outlets complaining that “nervousness, fear, dysfunction and a lack of confidence” were spreading inside the fund’s ranks and a separate news report revealed the Caisse was implementing an especially low-threshold bonus program to top up its employees’ earnings. Most recently, the PQ registered its polite disapproval of the fact $4 million worth of bonuses were handed out to five senior managers at the Caisse.

In an open letter published yesterday by Le Devoir, Michael Sabia, the Caisse’s head honcho, insisted changes implemented over the past year were guided by “common sense” and a focus on “transparent investment vehicles of which we have a deep understanding.” In other words, pouring copious amounts of money into risky products no one really understands is being phased out as an investment strategy. Pity, that.

That said, there may yet be hope for Caisse employees—Sabia didn’t mention how “common sense” would impact preparations for this year’s party.




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It’s not the banks I hate, it’s their fans

  1. I once gave a presentation to at a police training seminar. They rented out a BMO training facility in Toronto for the week, and I stayed on site in one of the dorms.

    Scattered around were reading material for BMO managers and staff. Some of the pamphlets had snappy titles like "Client Service: The Key to Getting More of Their Wallet".

    Made quite an impression.

  2. "It's not the banks I hate, it's their fans"

    Funny, I feel the same way about Consolidated.

    • Can I think Consolidate's OK?

  3. Whenever I feel populist rage, I often imagine people (bankers in this instance) with diamonds sparkling while waltzing to Blue Danube in German ballroom and telling the rest of us to eat cake. And it's all paid for by the people being told to get stuffed.

  4. Finally, I understand how the "common sense" revolution went so terribly, terribly wrong.

    • Are you referring to Mike Harris' "common sense revolution"? How are you connecting this to the Caisse de dépôt ? I'll note that Michael Sabia is the anglophone CEO who was hired to replace the incompetent Fernand Perrault.

      Sabia used the term "common sense" to describe his decision to switch investment strategies, because apparently Perrault's decision to invest $100,000,000,000 in commercial paper and other risky securities didn't work out too well.

      • First of all CR, know of what you speak.

        Fernand Perrault is a fine gentleman and far from incompetent. He was the Executive Vice-President of the Real-Estate arm of the Caisse and only interim C.E.O. after Richard Guay left for medical reasons. Henri-Paul Rousseau was the C.E.O. who championed the investment strategy that for more than a few years led to solid results for the Caisse that then went south with the whole asset-backed commercial paper debacle.

        During his time as C.E.O. M. Rousseau also instituted many changes in the governance and mission of the Caisse that will stand it in very good stead over the coming years. He also had turned it around after many of the politically driven decisions that had been taken when Jean-Claude Scraire was C.E.O.

        • You're right. I was thinking of M. Rousseau, not M. Perrault. Apologies to M. Perrault. Thanks for the clarification.

  5. Yes, and I wondered after I posted it if the dots were connecting anywhere other than in my own mind. I only meant the common sense of giving 4 million dollars in bonuses to executives who lost millions. Not very common sense-ical, and nor did Harris turn out to be, IMO.

    • It'll be a tainted phrase in canada for generations.

  6. The issue of bonuses (and perhaps even lavish Christmas parties) are more complex than the knee-jerk reaction suggested by this article. In a time of crisis, it may be in the interest of the Caisse to shore up company morale and loyalty.

    1. Not all executives lost their company money. In the case of the AIG bonuses, there were divisions of AIG that had been profitable. The assumption that everybody dropped the ball is the ecological fallacy run amuck. Bonuses are a good way to reward and incentivize profit-making behavior.
    2. I have never seen anybody compare CEO (or other) bonuses to bonuses in previous years. If bonuses are higher than they were before, that is probably an issue. If not, however, then I don't see the problem – bonuses dropped along with the company's performance. In many cases bonuses can be part of the contracts of individual workers. In the investment banking world, those bonuses are also probably large relative to their guaranteed salary.
    3. Doing badly is relative. This may not apply to AIG, per se, but there are cases where management is doing less badly than one would expect. Like if I took over GM in 2008 and they only lost a billion dollars, I think that would warrant a bonus.
    4. In addition to incentivizing good behavior, there may be other reasons for bonuses. One is retention. When the organization is in trouble, many good people may begin to think they don't have a future there. Others might retire. If you have a really good employee, however, it may be worth keeping a premium to keep him/her on during tough times.
    5. As for the lavish Christmas party, I can see a case being made for it. Morale is probably low, particularly since some people expect to be fired. When that happens worker productivity suffers (since layoffs are usually not based on performance).

  7. Lavish? That's $100 a person. At new years time, that's not all that lavish. That's just a Christmas party that's not in the office, and includes food.

    Anyway, I find it amusing the focus on the 50k, while ignoring the political interference, meddling, and general incompetence that has led to the Caisse losing a huge chunk of retirement money. The 50 billion they lost is exactly 1 million times more important than the "lavish" 50k Christmas party, so focus on that.

  8. Will they stop investing in derivatives??

  9. The Caisse is not a bank. It is to QPP as the CCPIB is to CPP. But it is much more than that. It also handles the investments for the pension funds for Québec techers, farm workers and other depositor groups and also invest the funds from the Workers' Compensation in Québec.

    However, as this is Québec it is of course even more than that. It is seen by various groups in the province as one or all of the following:

    a pillar of modern Québec,
    a driver of Québec Inc.,
    the "bas-de-laine des québécois,"
    a political football,
    a source of price,
    a political football

    and so on …

    What should be looked at is did it lose more or less than the market? Did it lose more or less than the average loos for comparable funds during the same period?

    • Good point about the relative performance. According to RBC Dexia's numbers, the average loss for retirement funds in Canada in 2008 was 15.9%.

      As for the Caisse not being a bank, you're entirely right, but I'd expected everyone to unquestioningly applaud the brilliance of my headline. Thanks for crushing my dream.

      • No dream crushing intended. At least everybody was reintroduced to Mojo Nixon.

  10. I guess the Maclean's X-Mas party was pretty dull this year, was it ? Did they cut the crusts off the chicken salad sandwiches ? Was the ginger ale Loblaw's house brand ?

    You guys need to get away from your computer screens a little more often.

    • You were there? You should've come to say 'hi'. I could've bought you a ginger ale.

  11. I just hate banks. I can't think of any defensible explanation as to why they are given the license to create money, which they do, from this air, every time they extend a loan to someone. Even in this climate of low interest rates, it should be impossible for a bank not to make money under those conditions, but there is no end to the greed so they end up exposing everyone to a lot of needless financial risk.

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