CDIC limits and perceived safety of some FIs | Page 3 | General financial discussion | Discussion forum

COIN said
I read about this trust companies debacle in the history books. It is my understanding that the Ontario government (perhaps technically not the regulator) took control of the 3 companies and then sold them off. Did the depositors lose any money money? …

Ontario government would be the regulator if the trust company was provincially incorporated in Ontario instead of federally. I think that was the case with Greymac Trust, Crown Trust, and Seaway Trust.

According to August 13, 1984 Maclean's article Taking a government to court, no-one assumed Crown Trust deposits:

… In February, 1983, the government sold Crown’s fixed assets —buildings and furniture—to Central Trust of Halifax. Last November, Crown Trust’s agency and estate business was also transferred to Central. Crown was left with $130 million worth of i mortgages which the "government said were of" doubtful value.

According to Wallis King, a Toronto investment counsellor acting as unpaid tactician for the shareholders, the investors had hoped that Ontario would trade some of Crown’s assets for their shares. But in May, he said, he discovered that the Canada Deposit Insurance Corp. (CDIC) had control of Crown’s assets. A federal Crown corporation that insures depositors’ funds, the CDIC had paid Crown depositors $300 million by the end of 1983 and wants to recover some of those payments by selling off the assets.

CDIC paid $300 million out to depositors. Presumably, anyone above CDIC limits lost money.

Not surprising no-one wanted to assume the $300+ million liability for the deposits in return for $130 million of doubtful mortgages.

Royal Trustco wasn't insolvent. But, it did need more capital to continue in its deposit taking business.

In return for assuming the Royal Trust deposits, Royal Bank was allowed to cherry pick through the assets. Royal Bank accepted the staff, branches, desirable parts of the loan book, the corporate trust business, the estate trust business, and the mutual funds business.

Royal Trustco got what was left behind: The bad loans and foreclosed real estate.

Royal Trustco was renamed Gentra and continued on as a real estate company.

The preferred shares I had eventually recovered as Gentra resumed paying the dividends. I also received the dividends that were in arrears as I owned their cumulative preferred shares.

The common shareholders were not as happy. The common shares didn't recover fully by the time I sold them to invest in something else.

Norman1 said
Royal Trustco wasn't insolvent. But, it did need more capital to continue in its deposit taking business.

In return for assuming the Royal Trust deposits, Royal Bank was allowed to cherry pick through the assets. Royal Bank accepted the staff, branches, desirable parts of the loan book, the corporate trust business, the estate trust business, and the mutual funds business.

Royal Trustco got what was left behind: The bad loans and foreclosed real estate.

Royal Trustco was renamed Gentra and continued on as a real estate company.

The preferred shares I had eventually recovered as Gentra resumed paying the dividends. I also received the dividends that were in arrears as I owned their cumulative preferred shares.

The common shareholders were not as happy. The common shares didn't recover fully by the time I sold them to invest in something else.  

I bought Gentra over the course of a year. As I recall I made 25% so I was happy. I sold and moved the funds elsewhere. Not sure what happened to Gentra after I sold. I think it became Brookfield Properties.

COIN said
The main and maybe the only important point is that depositors with trust companies that were taken over by the big banks were all made whole.  

For insured deposits, yes. I don't think that is necessarily the case for uninsured portions in some of those 43 'failures'. That would depend on the particular characteristics of the 'failed' firm, e.g. was it a rescue before insolvency in which case I imagine there were enough assets to cover uninsured deposits, or was the firm already defaulting on its obligations and sold off as a non-ongoing concern.