• Bank may not have enough assets to pay all owed, OSFI said
  • Relying on German process could short-change Canadians: memo

Canada’s banking regulator pushed to liquidate Maple Financial Group Inc.’s German unit after warning that Canadian creditors may be short-changed by Germany’s insolvency proceeding against the lender, according to an internal memo from the Office of the Superintendent of Financial Institutions.

German banking watchdog BaFin shuttered Maple Bank GmbH in February after a dispute over tax refunds threatened the firm’s stability. Authorities in that country are seeking to hold Maple Bank liable for alleged tax liabilities of as much as 392 million euros ($436 million), according to court documents. The bank also has branches in Canada and the Netherlands, and broker-dealers in Canada, the U.S. and U.K.

“The best avenue to protect depositors and creditors of the Canadian branch is to liquidate" under the Winding-Up and Restructuring Act, according to a Feb. 11 memo from Jamey Hubbs, an assistant superintendent at Canada’s banking regulator, to Superintendent of Financial Institutions Jeremy Rudin. The memo was obtained by Bloomberg News under Canada’s Access to Information Act.

Maple’s Canadian branch, whose main businesses involve securitization of mortgage receivables, fixed-income trading and structured finance, includes wholesale deposits raised from German depositors, according to the memo. The Toronto branch had assets and liabilities of C$5.4 billion ($4.2 billion), including C$563 million of wholesale deposits, according to the memo. As of Sept. 30, Maple Bank GmbH had assets of 6.5 billion euros.

“While there may be sufficient assets in Canada to satisfy the depositors and creditors of the Canadian branch, given the expected over-indebtedness of the foreign bank there may be insufficient global assets to satisfy all depositors and creditors," according to the memo. “Relying on the German insolvency proceeding could result in Canadian assets being used to satisfy German liabilities.”

The memo urged Rudin to request an order from Canada’s attorney general to wind down the bank to protect investors and creditors of the Canadian branch. The attorney general filed documents on Feb. 16 with the Ontario Superior Court of Justice in Toronto to initiate Maple Bank’s liquidation. The process, overseen by KPMG, is ongoing.

“OSFI’s mandate is to protect depositors, policyholders and other creditors,” Sylviane Desparois, an OSFI spokeswoman, said Wednesday in an e-mailed statement. “One way of doing so is by intervening promptly when corrective actions need to be taken.”

Maple Financial’s shareholders include Ontario Teachers’ Pension Plan and National Bank of Canada, which took a C$164 million first-quarter write-off for its investment in the firm.

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