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(July 4, 2007) It seems reckless sub-prime mortgage lending is not isolated to the United States. Britain’s Financial Services Authority has taken enforcement action against five firms over the behaviour of intermediaries and lenders that service consumers with impaired credit histories.

The FSA reviewed 11 lender firms, representing more than 50% of the sub-prime market by volume of sales. It also included 34 intermediary firms covering 485 customer files, of which 90 were tracked from first contact with an intermediary, through to the lender’s final decision on issuing the mortgage.

The study found no significant evidence of sub-prime mortgages being sold improperly to customers with a higher credit rating or “prime customers,” but several issues were identified for both intermediaries and lenders when selling to sub-prime customers.

The FSA says that one-third of the intermediaries reviewed conducted an inadequate assessment of consumers’ ability to afford the mortgage.

For lenders, the main weaknesses were found in their lending policies. None of the lenders adequately covered all responsible lending considerations in their policies. In many cases, lenders did not apply their existing policies. For example, some firms failed to check the plausibility of information, as required by their own lending policy.

“Poor sales practices in this market may lead to serious wider consequences,” said Clive Briault, managing director of retail markets. “The high level of sub-prime arrears in a benign market raises some important questions about the consideration given to affordability by lenders and intermediaries when undertaking this business.”

The FSA says it will continue to monitor firms operating in the sub-prime market and will continue its focus on debt and affordability for the latter half of 2007. This will include specific work on self-certification.

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Dickson gets official nod to head OSFI

(July 4, 2007) Finance Minister Jim Flaherty has announced that Julie Dickson’s stint as acting superintendent of financial institutions will be a full-time gig. Her seven-year term is effective immediately.

“I am pleased Ms. Dickson has agreed to serve in this role to promote the stability and soundness of Canada’s financial system, in the best interest of all Canadians,” Flaherty says.

Dickson joined the Office of the Superintendent of Financial Institutions in April of 1999, and was assistant superintendent, regulation sector, from January 2000 to June 2006, when she was named deputy superintendent. She has served as acting superintendent since October 2006. Before working with OSFI, she spent 15 years with the Department of Finance primarily in areas related to financial-sector policy.

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Sprott snags star managers from Sceptre

(July 4, 2007) Sprott Asset Management announced Wednesday that Allan Jacobs and Peter Imhof will be leaving Sceptre Investment Counsel and joining Sprott Asset Management, effective August 1, 2007.

Jacobs had managed the $844-million Sceptre Equity Growth Fund, along with the $484-million Sceptre Small Capitalization Canadian Equity Pooled Fund, since 1993. Jacobs was chosen as the 2006 fund manager of the year at the Canadian Investment Awards, and the Sceptre Equity Growth Fund was recently awarded the Best Canadian Small Cap Fund over one-, three-, five- and ten-year periods at the 2007 Canadian Lipper Fund Awards.

Imhof was managing director of Sceptre and was involved with its Canadian small cap team. Prior to that, he was involved in quantitative analysis, risk analysis and portfolio construction in Canadian equities and has been a significant contributor to the management team of the Sceptre Equity Growth Fund and the Small Capitalization Canadian Equity Pooled Fund.

Sceptre may not be too far in Jacobs’s and Imhof’s rearview mirror. Sprott says it intends to provide sub-advisory services to Sceptre’s Small Cap Opportunities Fund. Presumably, Jacobs and Imhof will be key players in this role.

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CI, CIBC offer deposit note

(July 4, 2007) CI Investments announced the launch of the CIBC CI Enhanced Return Notes, Series 1, an investment product that provides Canadian investors exposure to the Signature Income & Growth fund.

The notes have an enhanced return feature that provides investors with 150% of any positive return of the fund at maturity and 100% of any negative return of the fund (net of fees and based on $95.00 per note). The notes are not principal protected.

CI says this feature allows investors to take advantage of a leveraged upside without the disadvantage of a leveraged downside. In addition, any distributions by the fund are notionally reinvested in the note, providing the potential for additional tax-deferred growth.

The Signature Income & Growth fund’s portfolio is managed by Signature Advisors, led by Eric Bushell and James Dutkiewicz.

The notes have an eight-year term to maturity and are available for sale until August 9, 2007, through registered dealer representatives. The minimum purchase is $5,000.

In an unrelated release, CI Investments also announced that the Global Opportunities II Fund terminated as scheduled on June 30, 2007. CI says that on or about July 13, 2007, unitholders will receive their pro rata portion of the fund’s assets as calculated at the close of business on June 29, 2007.

The total net asset value of the fund on June 29 was $10,912,155.17, and there were 1,287,481 units outstanding. Each unit was valued at $8.4756.

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GGOF expands PPN offerings

(July 4, 2007) Guardian Group of Funds Ltd. announced the launch of Bank of Montreal GGOF C.O.R.E. Protected Deposit Notes, Series 2, 3, and 4. The deposit notes are based on the performance of GGOF Dividend Growth Fund.

GGOF says that the asset allocation strategy of the notes provide up to 200% exposure to a portfolio of dividend-paying stocks in order to enhance returns. In addition, 100% of the principal is protected if the notes are held to maturity with the Bank of Montreal as issuer.

The annual all-inclusive fee is 2.60%, and the notes are offered in three different classes: total return class, yield class and a return of capital class.

GGOF says the total return class is most suitable for investors seeking long-term capital growth since all the fund portfolio distributions will be notionally reinvested.

The yield class is ideal for investors seeking regular monthly income. It will provide a distribution rate, classified as interest income that will be 100% of the distribution rate of the fund.

The return of capital class is most suitable for investors seeking regular monthly distributions and tax deferral. The distribution rate will be 100% of the distribution rate of the fund, with tax-deferral until maturity or when the note is sold.

Each class has a six-year term.

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(07/04/07)