Goodman call seeks to allay advisor fears

The executive team of Dundee Corporation has moved quickly to allay the concerns of their advisors, holding a conference call in the wake of the announced sale of Dundee Bank to Scotiabank.

Dundee president and CEO Ned Goodman, along with board member and heir apparent David Goodman and DundeeWealth executive vice-president David Whyte assured Dundee advisors that it was “business as usual.”

Advisors were told that the deal was “about altering a business model.” The reason for the unexpected announcement was that “circumstances had changed” over the last 60 days, an allusion to the liquidity crisis in the asset-backed commercial paper market.

Dundee Bank had built its finance model on ABCPs — a financial product that has been affected by the US credit crunch due to sub-prime mortgages. In the opinion of the Dundee executive management “it [was] no longer possible, in this market, to build a virtual bank.”.

Dundee management told advisors that all accounts and all funds would “absolutely” remain active. “This announcement was not a notice of changes to any products or services provided by DundeeWealth or Dundee Bank of Canada, or to any Dynamic fund. All our funds continue to operate — it’s business as usual.”

The executive team could not confirm that Dundee Bank’s highly competitive interest rate on investment loans would remain low by industry standards. However, advisors were told that DundeeWealth would work closely with Scotiabank to influence the interest rate and continue their competitive position in the current market. All final decisions on interest rates for current products would be a “joint decision” between Dundee Corp. and Scotiabank.

Industry analyst Dan Hallett, principal of Dan Hallett and Associates, said today’s move came as a surprise, given the elder Goodman’s past criticism of the large banks. Dundee has also managed to downplay the threat posed by the commercial paper liquidity crunch

“I’m not familiar with what goes on behind the scenes and the financial vehicles these virtual banks use to finance themselves, but I wouldn’t have thought [the ABCP crisis] would have caused them to sell their banking operation,” Hallett says. “This basically tells us that they cannot foresee a time given the current circumstances that they would be able to operate Dundee bank as it was before. That’s a pretty significant statement.”

Hallett says based on what he heard from the company’s conference call the big challenge for DundeeWealth will be to alleviate the fears of their advisor clientele, many of whom are worried the Dundee brand is on the endangered list.

“A key to making the advisor reception positive will be keeping the Dundee name on the banking products and FundSERV codes,” Hallett said. “It’s sort of a minor detail, but to have the FundSERV codes remain as Dundee codes gives advisors more comfort that they are marketing Dynamic or Dundee products.”

The Dundee management team said it expects the Office of Superintendent of Financial Institutions is expected to endorse the sale of Dundee Bank shares to Scotiabank.

Originally published on Advisor.ca on September 18, 2007 and co-written with Mark Noble