VANCOUVER, British Columbia, Aug 20 (Reuters) - National Bank of Canada (NA.TO: Quote, Profile , Research) said on Monday it will buy about C$2 billion ($1.9 billion) in asset-backed commercial paper from its mutual funds and its retail and corporate clients to help firm up their positions in the short-term debt market.
As a result, clients of Canada's sixth biggest bank will no longer have exposure to the nonbank ABCP market, where investors, spooked by problems in the U.S. subprime mortgage market, lost confidence in the assets underlying the instruments and refused to keep buying them.
One analyst described the move as a "goodwill gesture" by National Bank, which had in the past encouraged investors to put money into that part of the ABCP market not run by Canada's big five banks because of the higher returns available.
Shares in National Bank fell on the Toronto Stock Exchange along with other banking stocks on Monday. At 1.07 p.m (1707 GMT) National Bank's stock was down 45 Canadian cents at C$54.35.
"National is covering themselves from a reputational perspective. They just don't want their advisers and investors to be that annoyed with them," said Genuity Capital Markets analyst Mario Mendonca.
The move by Montreal-based National Bank comes after 10 financial institutions, including National, two pension funds and six foreign banks, agreed last week on a plan to ease the credit crunch in Canada's C$40 billion nonbank ABCP market. Continued...