A free public service offered by Paul Kemp - Central Nova - Nova Scotia There are ten steps, or stages, to the evolution of a practical and efficient form of representative government, and these are: 1. Freedom of the person. Slavery, serfdom, and all forms of human bondage must disappear. 2. Freedom of the mind. Unless a free people are educated -- taught to think intelligently and plan wisely -- freedom usually does more harm than good. 3. The reign of law. Liberty can be enjoyed only when the will and whims of human rulers are replaced by legislative enactments in accordance with accepted fundamental law. 4. Freedom of speech. Representative government is unthinkable without freedom of all forms of expression for human aspirations and opinions. 5. Security of property. No government can long endure if it fails to provide for the right to enjoy personal property in some form. Man craves the right to use, control, bestow, sell, lease, and bequeath his personal property. 6. The right of petition. Representative government assumes the right of citizens to be heard. The privilege of petition is inherent in free citizenship. 7. The right to rule. It is not enough to be heard; the power of petition must progress to the actual management of the government. 8. Universal suffrage. Representative government presupposes an intelligent, efficient, and universal electorate. The character of such a government will ever be determined by the character and caliber of those who compose it. As civilization progresses, suffrage, while remaining universal for both sexes, will be effectively modified, regrouped, and otherwise differentiated. 9. Control of public servants. No civil government will be serviceable and effective unless the citizenry possess and use wise techniques of guiding and controlling officeholders and public servants. 10. Intelligent and trained representation. The survival of democracy is dependent on successful representative government; and that is conditioned upon the practice of electing to public offices only those individuals who are technically trained, intellectually competent, socially loyal, and morally fit. Only by such provisions can government of the people, by the people, and for the people be preserved.

The Best Kept Secret of the 20th Century!
Money-Creation As the Foundation for a Just Society

Bank of Canada Tutorial

Banking and The Canadian Government

Writes Bob Chapman of International Forecaster:

"Not one banking or Wall Street executive owned up to what really happened to cause the crisis. They are totally lacking in honesty, integrity and decency. As it now stands we'll never know the true inside story of what really went on. We have seen no civil or criminal charges against any of these crooks. Not even investigations. Whatever happened to RICO. Over the past 25 years our financial industry has descended into darkness and corruption and the people who caused it are getting away scott free."......Source

Subject: Re: [Fwd: Re: Canadian Action Party (CAP)] state banking

 

Here's an item worth thinking about.  It's a good way to put heat on the provincial governments to bypass the Federal Government's tight money policy.  It's
Canada's best kept open secret. 

 

Friday » September 5 » 2003

Will this little piggy bank go to market?

Once a scandal-plagued basket case, Alberta Treasury Branches has been reformed into a profitable powerhouse primed for privatization. So why is a fiercely free-enterprise province refusing to sell the West's biggest bank?
 
George Koch    
National Post

At Rocky Mountain House, the West's past meets its future. With a population of 6,500, an economy based on natural resources, agriculture and tourism, and a history dating to the fur trade, it's a quintessentially Albertan town. It's where William "Bible Bill" Aberhart, the eccentric founder of the Canadian Social Credit movement, in 1938 set up the first outlet of a provincially owned banking system. Alberta Treasury Branches was a bellow of defiance at the "Eastern bastards" who would rather see the province's farmers ruined by the Depression than extended credit. And here at Rocky Mountain House, the recent transformation of Aberhart's brainchild -- now called ATB Financial and headed by a Quebecer hired away from a big Eastern bank -- stands vividly exposed.

Over the past six years, North America's only state-owned retail bank, which turns 65 this month, has metamorphosed from a financial basket case into a profitable and fast-growing Crown corporation. It's now the eighth-largest bank in Canada, with $13.2 billion in assets. That makes it almost as big as Montreal's Laurentian Bank and nearly double the size of Vancouver City Savings Credit Union, the next-largest independent lender in Western Canada. A growing chorus of western bankers, politicians and academics says ATB is ready for its ultimate rite of passage: privatization. An investor-owned ATB could become the core of a Western financial powerhouse. Proceeds from its sale could feed health and education budgets. Why, then, do taxpayers continue to own it?

It's strange that the question needs to be asked at all. This is Alberta, after all, Canada's most self-consciously pro-free-enterprise province. Premier Ralph Klein has said many times he's loath to be "in the business of being in business." But the case of what one historian dubs the "anti-bank" reveals much about Alberta and Albertans. For every rule there's an exception, for every principle a footnote, and for every rugged individualist a struggling farm family afraid that a "normal" bank would call its loan. One local politician calls Albertans' attachment to ATB "the ultimate dichotomy."

Keith BucRating 2 olz, who runs ATB's Rocky Mountain House branch, sees this contrast up-close. The operation recently relocated from downtown to the busy commercial strip. BucRating 2 olz, a native of small-town Alberta who is marking his 30th year with ATB, is proud of the spacious new outlet with its fieldstone decor. He believes it sends the message that "we're here for the long term." While the big banks are closing rural branches and forcing customers to bank online or through distant call centres, ATB holds firm to old-fashioned service, he says. "We're a part of the community. Our managers and employees are active at all levels, and we know many of our customers personally." The way the big banks treat borrowers, he observes, imposing unrealistically high equity ratios on loans and avalanches of conditions, suggests "they don't want to do business here." He has a point: The Big Five's rural business is flat or declining. By contrast, BucRating 2 olz's has grown 45% over four years.

ATB branches like BucRating 2 olz's cater to Alberta's outsized small-town population, which helps give the province a unique banking landscape, with a strong credit-union movement and likely the smallest big-bank market share in Canada. While ATB may draw a blank outside the province, here it's nearly ubiquitous. Its 276 branches and retail-store agents form Alberta's largest network, and its 1.4 million client accounts exceed the combined total held by the Big Five. When the big banks de-emphasized lending in many provincial markets during the 1990s, focussing on more lucrative corporate prospects in the U.S., ATB exploited the opportunity. Targeting Alberta's middle class, much of which still derives its livelihood from blue-collar labour, resource extraction and agriculture, ATB grew its loan book at twice the rate of the big banks, almost doubling it in six years. In fiscal 2003, its assets rose by 7% and it earned a $200-million profit.

Bob Normand, ATB's CEO of two years, agrees that much of ATB's success stems from its innate competitive advantages, such as the profound connection to Alberta's rural core. "Every one of our rural branches makes a contribution to our bottom line," he says. "If you can only do business in one province in Canada, certainly over the last 10 years that province has been Alberta."

It's perhaps not so surprising that Ralph Klein & Co. prefer basking in the warm glow of ATB's revival to ejecting it into the private sector's competitive mosh pit. Ten years ago, industry watchers assumed ATB would follow Northland Bank, the Principal Group and the rest of the province's financial rabble into oblivion, with the big banks picking over its better assets. Alberta's "piggy bank" had spent decades floating troubled farmers, unemployed homeowners and other credit-unworthy clients, accumulating half a billion dollars in bad loans. It racked up more than $300 million in losses by the mid-'90s.

Any real bank would have had its federal charter pulled. But being provincially chartered, ATB was immune to such consequences. So it tottered along under government ownership, a laughingstock in banking circles (sample put-downs: "The ATB, where bad loans go to die"; "The ATB, our industry's unemployment insurance service"). To date, 19 ATB employees have been investigated for fraud or other improprieties, and one has been criminally convicted.

ATB spent much of the '90s battling its two biggest customers: the Ghermezian family, owners of the West Edmonton Mall (WEM), and entrepreneur Peter Pocklington, former proprietor of the Edmonton Oilers NHL franchise. In 1994, allegedly at Tory ministers' bidding, ATB extended WEM a staggering $353 million in guarantees and loans in a refinancing of an even larger earlier loan package. Then it had second thoughts and tried to push WEM into receivership, even accusing its own former head of taking bribes from the Ghermezians. The clients fought back, and the various claims and counterclaims eventually topped $1 billion. The ATB also sued Pocklington, who had borrowed $150 million to finance a number of businesses. But instead of crushing "Peter Puck," the suit gave him a platform to recount how Alberta's pols had misused ATB to fix political problems. Eventually, ATB simply walked away from its claim, apparently still owed $71 million.

In principle, the government-induced mess at ATB formed a powerful argument for privatization. The catch was, privatization would first require a massive infusion of public funds. Chartered (so-called Schedule 1) banks must have unencumbered capital representing 7% of total assets, but ATB had always operated without any capital at all. Legally, it was a branch of Alberta's treasury -- hence its name -- and so was deemed to have the same financial strength as the province itself. Thanks to its status, it was paying neither income tax nor deposit insurance premiums. Viewed as an independent institution, ATB had been technically insolvent throughout its history. In the mid-'90s, it would have required up to $700 million in government cash to qualify for a federal charter -- a sum Klein deemed unaffordable. Pulling the plug, meanwhile, was politically unpalatable. ATB's failure would be a huge embarrassment to Klein. Even worse would be the wave of foreclosures and called loans that would come if ATB's loan book was sold to a private bank.

Instead, the government opted for reform. In 1996, the ATB "superintendent" was replaced by Paul Haggis, a finance industry veteran, in the new post of CEO, and ATB became a Crown corporation. Putting the government organ at arm's length and insisting it meet tough benchmarks triggered a sea change in ATB's culture on par with that currently sweeping through Quebec's Caisse de dépôt et placement. Haggis set aside $200 million for bad loans, investigated incompetent or dishonest employees, turfed deadwood managers and hired experienced professionals. He brought lending, liquidity and risk standards closer to those of the big banks. And he developed the institution's first business plan. Although the word "privatization" was still considered taboo, Haggis was creating a blueprint for ATB to compete in the real world.

One of Haggis's earliest moves was to hire Bob Normand to oversee sales. A bilingual career banker from Montreal, Normand seems like everything that Bible Bill Aberhart resented. Now 57, Normand started in banking right out of high school and has moved up through management positions on both the retail and commercial sides. His last gig before ATB was as Bank of Montreal's regional VP in Edmonton. He succeeded Haggis in late 2001. (Haggis was recently named CEO of the massive OMERS pension fund.)

If you imagined today's ATB on a continuum from crime-ridden political slush fund to best-in-class financial superstar, Normand would put it more than halfway to star status. Deposits grew by 6% last year, while impaired loans were down to $100 million. ATB's productivity ratio, a key measure relating non-interest expenses to net revenues, was 67% in fiscal 2003; the big banks averaged 69.5% (lower is better). ATB has been profitable in every quarter since 1997. It has also diversified into the panoply of modern banking services, from mutual funds to credit cards. "ATB has put most of its historical problems behind it," says Larry Pollock, CEO of Canadian Western Bank (CWB), a publicly traded institution based in Edmonton. "It's running effectively like a Schedule 1 bank should be run." Scott Tannas, CEO of Western Financial Group, an insurance brokerage network based south of Calgary, agrees. "ATB has a business model that's profitable down to the tiniest villages, which is unique."

Under Normand's current plan, ATB is aiming for annual growth of a muscular 10% in loans and 8% in deposits, and to reach a productivity ratio of 65% while further improving risk management. Normand wants to boost commercial banking, emphasizing larger loans, and to move into niches opened by the big banks' retreat from Alberta. His goal is a portfolio of business loans that's reflective of Alberta's economy -- from oilpatch head offices in Calgary to machine shops in Edmonton to big-box retailers in Grande Prairie -- and managed by specialists in each sector. In a major coup, Normand recently nabbed the former head of the oil and gas unit at Royal Bank, Alberta's largest and most experienced energy-industry lender, and installed him in the newly created position of vice-president, energy.

To achieve these goals, Normand says ATB will increasingly "go where the people are" -- namely, Alberta's fast-growing Edmonton-Calgary corridor. While ATB has been active in the bigger cities for decades, its current 40-60 urban-rural split in market presence is the inverse of Alberta's population. Normand would like to more closely match the demographic reality while continuing to exploit ATB's proven formula of down-home retail banking. He believes the combination of ATB's relatively small asset size and opportunities like the urban market and energy lending mean "we could double our business without stepping outside Alberta's boundaries."

The stronger ATB grows, the weaker become the arguments against privatization. With $791 million in retained earnings at its last fiscal year-end, just one more year's net income should bring it to a 7% capital ratio. After that, ATB would no longer require government cash before being sold. The more it earns and the cleaner its balance sheet, the higher price it would fetch. And the stronger a market competitor it becomes, the weaker the threat of its falling to a branch-closing acquisitor. Some say the last tangible obstacle to privatization fell last November, when ATB reached a settlement with the Ghermezians, allowing it to move $45 million previously set aside against expected losses into 2003 net income.

"The government shouldn't own ATB any more than it should own Home Depot," says John Carpay, Canadian Taxpayers Federation's Alberta director. "It's time for the ATB to be 'retired' into the private sector."

Alberta has a string of successful privatizations under its belt, including liquor retailing and land registries, plus several large business operations such as Alberta Government Telephones (now Telus), Alberta Energy Co. (now EnCana) and its share of the Syncrude oilsands consortium. (Alberta's controversial electricity restructuring did not involve privatization.) The sales have been technically successful, lucrative (the province netted more than $500 million on AGT) -- and popular.

CWB's Pollock estimates ATB would be worth 1.3 to 1.5 times its net book value today, or at least $1 billion. Klein could create a suitably patriotic aura by restricting all or part of the initial public offering to Albertans, a previously used model Pollock thinks would be politically saleable. Besides, as one banking analyst notes, investors love bank stocks and an ATB offering would almost certainly find an eager audience. Equally important, a privatized ATB's most likely corporate suitors would be other Western financial institutions. "If the government decides it wants to sell it," says Pollock, "we'll put our hands up and say, 'Yeah, we're interested.'" With assets of $4.1 billion, CWB is less than one-third ATB's size. On the other hand, it has a large capital base, a stellar credit rating and is publicly traded, enabling it to issue equity to help fund a purchase. Most importantly, any such deal would be on friendly terms -- meaning the government would ensure it worked.

Some of Alberta's 67 credit unions, which collectively boast more than 625,000 depositors and are growing even faster than ATB, would also consider buying part or all of ATB's network, says Graham Wetter of Credit Union Central Alberta Ltd., the system's umbrella organization. A few years ago, Wetter points out, the credit unions snapped up 21 of BMO's cast-off Alberta branches. Western Financial Group's Tannas is another eager privatization advocate, describing it as an "historic opportunity to create a magnet by which a lot of Western financial institutions could join into one." Tannas envisions gathering up regional insurance brokers like his own company, plus local investment banks and wealth managers -- all of which are areas where ATB is weak or inactive -- and creating an integrated regional financial powerhouse modelled on Quebec's National Bank.

Brent Rathgeber, an Edmonton MLA in Klein's caucus, has a legislature motion to consult with voters on ATB's future. "I always felt it was odd that the government felt the need to own a major financial institution," he says. Rathgeber argues that Alberta would be better served if ATB's locked-in value were used to upgrade roads, schools and hospitals.

ATB's CEO, usually a chatty man, grows guarded when privatization is raised. "It is quite frankly a subject where I have no opinion," says Normand. "We think we function as close to a publicly [traded] institution as we can." And, ultimately, it's not his decision. Last fall, Klein's government quietly renewed ATB's charter for five years, a move that doesn't rule out privatization but suggests no immediate enthusiasm for it, either. Treasurer Pat Nelson declined to be interviewed on the subject, while Klein himself has been coy. In April, he told a local newspaper, "If there is a deal that we absolutely cannot refuse ... then we might consider it." He promised public consultation before any sale.

Such ambivalence isn't surprising, for the Alberta Tories aren't the ideological force they used to be. Two of Klein's most right-wing ministers, former treasurer Stockwell Day and Steve West, who privatized Alberta's liquor stores, have left provincial politics. So have several once-influential conservative backbenchers. Sources close to the government say the ATB issue splits Klein's caucus: some urban MLAs consider it a "non-core" operation that could be sold, another group thinks government ownership is good for consumers, and a solid pack of rural "sentimentalists" believes in ATB's original raison d'être.

F. L. (Ted) Morton, a political scientist at the University of Calgary, offers an intriguing rationale for hanging on to ATB. He advocates pulling Alberta out of the Canada Pension Plan, and notes that the province would need an in-house financial institution to help administer the assets of its "APP." ATB naturally comes to mind for that role. It could also help the province collect its own income taxes, says Morton. While these ideas are a long way from being party policy, they're shared by a number of prominent Albertans, including Canadian Alliance leader Stephen Harper.

At heart, Alberta's PCs may simply fear that privatization would alienate too many voters. A recent survey by the Canadian Federation of Independent Business revealed that the large majority of its Alberta members worry about the ongoing branch closures and declining bank service. ATB is the only banking game in many towns. Rathgeber admits that, what with Alberta's tough drought years and the current mad-cow crisis, "any political momentum to talk about privatization has run against terrible timing." Many people vividly recall ATB getting them through the lean times, he says, and they still see that as its role today. Cattle producers talk of being scared that the big banks will call their loans and wipe them out if Alberta's beef remains shut out of world markets. The banks have said nothing to dispel that fear. Normand, on the other hand, has been going on local radio shows, promising that ATB would be there to nurse its customers through yet another tough period. It's what Bible Bill would have wanted.

BANKING, ALBERTA-STYLE: ATB is far more ubiquitous than any of the big banks:

BRANCHES:         2002     1998

ATB Financial*     276    277

Chartered Banks**     745     745

Credit Unions         196     180

*includes retail-store agents **BMO, CIBC, RBC, Scotiabank, TD and National

Source: Credit Union Central Alberta Ltd.
© Copyright 2003 National Post Business Magazine