Saturday, February 6, 2010

My letter to the CEOs of Canada’s Six Banks

February 6, 2010

Mr. Gordon Nixon, RBC
Mr. William Downe, BMO
Mr. Richard Waugh, BNS
Mr. Gerald McCaughey, CIBC
Mr. Ed Clark, TD
Mr. Louis Vachon, National Bank

Dear Sirs:

I was prompted to write to you as a result of today’s headline article “Big Six Banks urge Ottawa to tighten mortgage rules” in which the statement is made that you are willing to forego short term profits to avoid any chance of a US style collapse.

I am pleased to see that you are taking a more socially responsible approach to the businesses you have been entrusted to run and that you have come to realize that there are consequences to your actions, that are often adverse for people in society beyond your boardroom walls and beyond simply your shareholder base and meeting the next quarter’s earnings forecast.

One such matter in need of immediate attention on your part is the matter of Mr Flaherty’s income trust fiasco and the existence of a solution called the Marshall Plan solution that I call upon you to support for inclusion in Budget 2010 in order that Canada can restore faith in the integrity of its capital markets, in the integrity of the Canadian system of democratic government and in institutions like your own, who in the words of Seymour Schulich interviewed on BNN said:

Amanda Lang: “How do you account for Bay Street’s compliance on the income trust tax”?

Seymour Schulich: “No disrespect to present company, and no disrespect to Bay Street, who made billions of dollars selling these things, and put them in all their client accounts and abandoned everybody, no disrespect to those people, there’s 2.5 million people who own these things and let me tell you my view, these voters are going to through these Conservatives out of power”

I personally know three of you and now call upon each of you to take a similar morally just position on the matter of Finance Ministers income trust fraud, in which he introduced sweeping tax policy on the basis of something as patently false as tax leakage.

Knowingly causing someone financial harm on the basis of a known falsehood fits the exact dictionary definition of fraud for Mr Flaherty’s actions, no less so than it fits Bernie Madoff’s actions. The Marshall Savings Plan solution is being met with widespread support from across the country and I invite you to read the comments of your fellow Canadian citizens here:

To also acquaint yourselves with the immense damage and gross unfairness that this absurd policy has resulted in and the utterly false premises on which it is based I refer you to any of the following:

(a) Leadership? 10 reasons why tax on income trusts a public policy 'train wreck', Hill Times,

(b) Why the income trust issue REFUSES to go away..., Hill Times,

(c) Letter to the Pension Industry Association of Canada,

Fortunately the Marshall Savings Plan provides an elegant means to avert the embarrassment of Canadians learning that Canada’s Finance Minister lied to all Canadians about tax leakage and that Bay Street virtually acquiesced to that patent lie for various sundry and tawdry commercial reasons.

In the same way that you are adopting different practices of mortgage lending to avert a possible sub prime mortgage collapse as experienced in the US, so too should you reflect on the systemic financial hazards that were created by the income trust tax along with the “welfare loss” that was predicted by Don Drummond of the TD Bank in his submission to the 2005 Public Consultation under Goodale.

One thing that many did not predict, but which I did, was that a policy that shifted Canadians’ innate preference to owning a profit sharing investment in real Canadians businesses would mean diverting (as was some people’s nefarious intent) more of Canadians savings into junk food investment products. Products like ABCP, which was nothing more than an elaborate check kiting scheme that was sure to fail or derivative products like Manulife’s Income Plus, a variable rate annuity product launched the very week of Mr. Flaherty’s trust tax and which subsequently achieved artificial levels of success, only for the risks that are embedded in that product to not be hedged, almost causing Manulife to fail.

As we speak, Manulife is still at risk as 75% of their exposure remains unhedged, a condition that Warren Buffett calls “crazy”, for any insurance company even those that are 100% hedged.

Therefore your concerns about averting a US style mortgage meltdown are commendable and the same logic applied to the fact pattern on the ground with respect to the policy outcomes of Mr Flaherty’s reckless income trust policy also demand of you a similar response, especially now that an elegant solution, called the Marshal Savings Plan, is available to be implemented in Budget 2010 to avert further negative fallout from that policy gone amok.

Each of you know or have reason to know that the argument on which Mr. Flaherty foisted his income trust policy on an unsuspecting and otherwise trusting Canadian population, namely tax leakage, was grossly in error as he failed to include the deferred taxes paid on the 38% of income trusts held in RRSPs. What is a mortgage if not a series of future mortgage payments over time.

Were any of your institutions to adopt Mr. Flaherty’s methodology for determining tax leakage to the question of mortgage lending would simply mean that none of you would lend a single dime to Canadians to purchase their homes, since their future mortgage payments would be worth zero in your minds as they are in the mind of Mr. Flaherty and the incompetents he is surrounded by at the Department of Finance when it comes to assessing tax leakage, However one of the great virtues of the Marshall Savinsg Plan is that it transforms all of tomorrow’s tax dollars on income trust distributions into present day tax dollars, rendering the issue of deferred taxes moot, while at the same time addressing Canada’s deficit crisis with $6 billion in much needed tax revenue and addressing Canada’s pension crisis by preserving an investment choice that is essential to the 75% of Canadians without pensions.

Had the desire on the part of the narrow few to destroy what is clearly in the best interests of all Canadians been waged on an honest and just basis, then the outcome would be for us to accept. However, had the desire to kill income trusts been waged on the basis of making explicit the real nefarious reasons that were behind it, it would have been derided and ridiculed by the public for what it was and would never have made itself onto the floor of the House of Commons for a vote.

Evidence that each of you knew or should have known that tax leakage was merely a ruse and a complete hoax takes the form of many reports published by your institutions, including the follow examples:

RBC: Research report of April 2007 entitled “Aesops Warning Ignored: Much wants more yet oft loses all” and the section on page one entitled “Flawed analysis” and “Proposed tax akin to killing the Golden Goose”.

BMO: Research report of December 2006 entitled “The inconvenient truth about trusts” and the section on page 5 entitled "Taxes and Trusts" that states: "we are of the view that income trusts do not cause a loss to government tax revenues" and goes on to detail why that is the case.

BNS: Surely the BNS was aware of the report that I tracked down with one phone call on November 1, 2006 entitled “The tax revenue implications of income trusts” by HLB Decision Economics that definitively refutes tax leakage

CIBC: Research report of April 2007 entitled “For Sale; Trust takeover activity post October 31, 2006” and the section that reads; “rather than eliminate tax leakage, the new tax structure instead serves to transfer the benefits of ownership from Canadian individuals to sophisticated (and largely foreign) owners.”

TD: Letter from CEO Ed Clark to customer David Marshall of Cornwall that states: “the Minister of Finance’s plan is based on the assertion that the federal treasury has lost millions in tax revenue, and the belief that the growing popularity of income trusts would likely result in greater future losses of tax revenue to the federal treasury”. As a matter of interest, I would like to point out that it is former TD Bank client David Mashall that the Marshall Savings Plan is named after, as it was he who submitted this concept to Finance Minister Jim Flaherty, through his own MP, Conservative Guy Lauzon.

It is this last statement that I find most condemning of the actions of Canada’s six banks on this matter and shows the lengths that some will go to in misleading people. Perhaps this also explains how you sold so much ABCP paper.

TD Bank clearly had the most to gain from the destruction of income trusts as TD Bank was nowhere in the league tables for income trusts as their distribution platform was more well suited to the institutional sale of common shares and not the retail sales of income trusts. However the act of writing a letter to a customer that extols the virtues of the “certainty” that Mr Harper’s world of broken promise ushered in as being somehow more appealing to anyone other than TD Bank itself, than the world of certainty that existed on the basis Mr Harper’s election platform commitment is bordering on total intellectual dishonesty on the part of TD Bank. To make things even more inherently deceitful the letter from Mr. Clark goes on to invoke the Finance Minister’s own false premise of tax leakage in order to get the maximum effect of that false premise to beguile David Marshall into thinking that false premise has a shred of merit. Careful not to enjoin itself too closely to the Finance Minister’s patent lie about tax leakage, the letter was clearly “lawyered” and the words “assertion” and “belief” were inserted for maximum legal protection, but minimum dissuading effect.

These letters were being sent to placate customers of TD Bank like David and Lorraine Marshall, all the while that TD Bank knew that tax leakage was a hoax and knowing that the policy would result in all the “welfare loss” outcomes that had been so accurately predicted by the TD Bank’s Don Drummond in his submission to the Goodale Public Consultation a mere 12 months earlier, see

I call upon each of you as fellow citizens and persons knowledgeable about the financial markets to join other Canadians across the country who seek to reverse and to halt the immense damage that was done was a result of Mr. Flaherty’s income trust fiasco by supporting the Marshall Savings Plan solution. You should be comforted to learn that one of the Plan’s greatest virtues is that it is a face saving solution to a problem that never should have occurred in the first place but which now demands to be addressed, as the failure on the part of any Canadian to do what is in their power to see the Plan implemented, be it the humble voter, member of Parliament, or the political leader, or even a bank CEO, is to own the “moral hazard” of the continued destruction and damage that is as certain to occur from this day forward from a continuation of this absurd tax policy, just as it was certain to occur from the outset, the outcome of which is irrefutable and can only be ignored at one’s peril.

With 169 of the original 220 income trusts still out there, the glass is not 25% empty, but rather 75% full. I am certain you will do the morally just and righteous thing by supporting your fellow citizen’s call for inclusion of the The Marshall Savings Plan solution in Budget 2010, if only so that people like Seymour Schulich can hold you in the greatest of respect and that the integrity of our capital markets and system of democratic governance can be restored.

Yours truly,

Brent Fullard
(Volunteer) President and CEO
Canadian Association of Income Trust Investors/Taxpayers

647 505-2224 (cell)


Dr Mike said...

Great letter---tying the deferred taxes from RRSPs to the mortgage deferred payments was "brilliant".

Well done

Dr Mike

Anonymous said...

If this does not make them change what will ? This was so well written brent. - eom.


Sent from my BlackBerry device on the Rogers Wireless Network

Anonymous said...

Direct and to the point Brent.
I pray that instead of taking offense, they take your words to heart,
and act in the best interests of all Canadians, (which in essence is precisely the same as acting in their own best interests.)

Brent, just a thought... do you see any merit in either forwarding a copy of your letter to the bank's chief economists as well?
Do the chief economists have any clout with their CEO's
Their chief economists all must know that Flaherty is completely unqualified, and certainly needs the guidance of properly
qualified economists, (without any political axes to grind), to help him do what is both fiscally and morally right for our great country...
Along the lines, "Now is the time for all good men to come to the aid of the Country"...???

With kindest regards,


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