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DICO placed Pace Credit Union under Administration due to governance issues
October 3, 2018
7:29 pm
Saver
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Notice from DICO
Deposit Insurance Corporation of Ontario

Due to governance issues, on September 28, 2018, DICO placed Pace Savings & Credit Union Limited under administration.

https://www.pacecu.ca/SharedContent/documents/2018/NOTICE.pdf

Referring to DICO's website, https://www.dico.com/Design/5_5_Eng.html#Administration.

Under DICO Depositor Protection Programs, there are:
Watchlist
Supervision
Administration and
Dissolution

"Administration. In some circumstances, the Act provides DICO the authority to place a credit union under Administration. Administration allows the credit union to continue to operate under DICO's direct control while providing sufficient time to develop and implement the most appropriate strategy to protect depositors."

Appreciate your sharing on this notice and how best depositors can protect themselves before major issues occur. The programs are listed by the seriousness of the issues and Administration is just before Dissolution.

Thank you for any advices.

October 4, 2018
5:58 am
canadian.100
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Pace Credit Union's mottos on their site:

"Discover the Credit Union Difference"
"Well Beyond a Bank"
"People before profits"

These mottos don't sound very encouraging as they go under Administration.
Wonder if Pace CU will disappear.

October 4, 2018
6:03 am
Top It Up
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WOW ... absolutely NO hint of any "trouble" on their welcome page

https://www.pacecu.ca

Governance issues ... sounds like hands in the cookie jar stuff, don't it?

Pace is ranked 38th largest credit union, by assets, in Canada (13th largest in ON.)

October 4, 2018
6:13 am
Koogie
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Wow indeed. I was just in one of their branches in Hamilton a couple weeks ago. I was going to buy a GIC but didn't.

The place was hopping. Tons of people in there. Many doing day to day banking, others doing loans, arranging mortgages. Not a hint of trouble.

October 4, 2018
7:31 am
savemoresaveoften
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Thats very interesting. So business as usual for now ? If being liquidated, how quickly will GIC owners get their money back ?

October 4, 2018
7:55 am
Norman1
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These are the seven circumstances, under subsection 294(1) of the Credit Unions and Caisses Populaires Act, 1994, for which DICO can place an Ontario credit union under administration:

294 (1) The Corporation [Deposit Insurance Corporation of Ontario] may order a credit union subject to administration by the Corporation in any of the following circumstances:

1. The Corporation, on reasonable grounds, believes that the credit union is conducting its affairs in a way that might be expected to harm the interests of members, depositors or shareholders or that tends to increase the risk of claims by depositors against the Corporation, but that supervision would, in the circumstances, not be appropriate.

2. The credit union has failed to comply with an order of the Corporation made while the credit union was subject to the supervision of the Corporation.

3. The Corporation is of the opinion that the assets of the credit union are not sufficient to give adequate protection to its depositors.

4. The credit union has failed to pay any liability that is due or, in the opinion of the Corporation, will not be able to pay its liabilities as they become due.

5. After a general meeting and any adjournment of no more than two weeks, the members of the credit union have failed to elect the minimum number of directors required under subsection 93 (2).

6. If a vacancy occurs in the board of the credit union resulting in there not being a quorum of directors in office and a general meeting is not called promptly as required under subsection 97 (2).

7. The Superintendent [of Financial Services] has made an order under section 240. 2007, c. 7, Sched. 7, s. 145.

For PACE, it may not be #3 or #4. "Governance issues" could mean it is for #1 or #5.

October 4, 2018
8:31 am
NorthernRaven
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The DICO notice says they "fully anticipate" Pace to emerge from administration once the governance issues are resolved. So it could be there's some sort of internal laxity that Pace hasn't been satisfactorily resolving, or the management may have been fighting DICO direction, or whatever.

The interesting thing is that aside from the notice tucked away on the Pace site, there is absolutely nothing else to be found on the net. As best I can tell DICO doesn't post a notice on their own site, and there are no news stories or other references at all. I sent a query to the Globe & Mail, and apparently a reporter there has been tracking this and is working on a story, but I don't know what they may have found out.

October 4, 2018
8:40 am
Koogie
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I also notice that PACE has been buying up a fair number of smaller credit unions over the last three years.

Overextended, perhaps ?

Might also explain the high deposit rates they have been offering. Trying to get back to whatever level of capitalization that DICO requires.

October 4, 2018
9:25 am
NorthernRaven
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Deposits aren't capital, they are funding/liabilities. You'd need to check their various measures of regulatory equity ratios, which don't seem to be obviously provided in their annual reports.

October 4, 2018
9:32 am
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From DICO's 2017 Annual Report -

As at year end, DICO’s Deposit Insurance Reserve Fund was $248.8 million, which represented approximately 82 bps of insured deposits. Due to the increase in coverage to $250,000 for insurable deposits, it is anticipated the objective of 100 bps of insured deposits coverage will be achieved by 2024.

October 4, 2018
9:40 am
NorthernRaven
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Pace's ratios, not the DICO fund. Their last annual report mentioned member equity at 6.6% of deposits, but nothing about the regulatory measures (risk-weighted, etc).

Perhaps they are overextended in lending to Toronto city council members, who are about to undergo a drastic reduction in job count... 🙂

October 4, 2018
11:12 am
Smartchick
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After reading the comments on this forum I thought I should contact PACE's Contact Centre and provide an update to those of you who are interested. The representative advised that "this is a governance issue and is an isolated incident and DICO fully anticipates that the governance issues will be solved, at which point, PACE will be released from administration". I'm not too worried, it's a wait and see.

October 4, 2018
1:16 pm
Saver
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Thank you everyone for your advices and information.

I also find that the Notice from DICO to PACE CU is hidden and protected by technology to make it unsearchable on the net.

I visited the Branch. Both the teller and Branch Manager failed to locate the document and had to dig in to finally find it. They provided the standard answer that it is only under Administration and nothing to worry about.

I believe as a member of PACE CU, we should be aware of the Notice from DICO. It is best to be posted on their home page and communicated to members by emails.

Thanks Norman1 for providing the Act and NorthernRaven for contacting Globe and Mail. Hopefully the reporter's report will bring some light and awareness to many of us who are in the dark.

For those of us who have GICs with Pace CU that is under Administration by DICO, we certainly do not have the peace of mind parking money with Pace CU. Is there anything we can do to protect our fund before it is turning to be ugly?

October 4, 2018
1:20 pm
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Saver said
Is there anything we can do to protect our fund before it is turning to be ugly?  

As long as you're inside DICO's insurance limits - just ride it out.

October 4, 2018
4:57 pm
Loonie
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Whether it's a bank or a CU, "owners" (known as "members" in CUs, or "shareholders" in banks) are among the last to know what is really going on. They all produce annual reports and you can go to annual meetings if you want, but you will never know the nitty gritty day to day.

October 4, 2018
5:42 pm
NorthernRaven
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The Globe's story is now published at https://www.theglobeandmail.com/business/article-pace-credit-union-placed-under-regulatory-administration-amid/, although it is behind their paywall.

The gist is that both the CEO and President (son and father Phillip and Larry Smith) have been placed on administrative leave. They quote an email circulating from Central 1 that Pace is “currently solvent and operating profitably." DICO's investigation continues and they've hired the consulting firm KSV Advisory.

Perhaps DICO will eventually need the services of members of another credit union they regulate... 🙂

October 4, 2018
11:53 pm
hotmony
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October 5, 2018
4:58 am
savemoresaveoften
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From Globe and Mail:

A provincial regulator has taken control of PACE Savings & Credit Union Ltd. amid an investigation into governance issues.

Late last week, the Deposit Insurance Corporation of Ontario (DICO) placed PACE “under administration," invoking a rare measure typically reserved for firms that are in serious financial or operational distress. Administration allows the credit union to continue functioning under the regulator’s watch to protect depositors.

In the meantime, PACE’s two most senior executives – chief executive Phillip Smith, and his father, Larry Smith, the former CEO who now serves as president – have been placed on administrative leave. PACE operates primarily in the Greater Toronto Area.

An investigation into PACE was launched as a result of the regular work DICO does to oversee the credit union, as well as “issues raised by a third party,” according to Guy Hubert, the regulator’s CEO. That investigation continues, but Mr. Hubert said it is "business as usual” for PACE’s day-to-day operations. More than 37,000 PACE members can still access their funds and make transactions normally. And the governance problems are “contained within PACE,” according to an update DICO shared with other credit unions that was obtained by The Globe and Mail.

Consulting firm KSV Advisory has been hired to assist DICO, which remains in charge of all operations.

“Following an investigation, we determined it was appropriate for the institution to be placed under administration in the best interest of the credit union and its members with an overall aim of supporting the long-term success of PACE credit union," Mr. Hubert said in an e-mailed statement. “Beyond that, our investigation continues.”

Mr. Hubert also said DICO “fully anticipates that the governance issues will be resolved."

A PACE employee told The Globe the credit union has “no comment,” and neither Phillip Smith nor Larry Smith responded to requests for comment. The credit union’s chief marketing and community relations officer, Dan Coldwell, referred inquiries to DICO.

PACE was created to serve employees of the Peel Region, near Toronto, but has grown by amalgamating with smaller credit unions and now has about $1.1-billion in assets, with branches stretching from London, Ont., to Whitby. For nearly three decades, Larry Smith led the credit union as CEO, but stepped down in March, 2016, and took on the president’s role. Phillip Smith has been PACE’s CEO since then, and the future of both with the credit union is now unclear.

“What role they might play at the Credit Union in the future will be determined in due course during the Administration proceedings,” DICO said in a statement.

STORY CONTINUES BELOW ADVERTISEMENT

An e-mail circulated by Central 1 Credit Union – which provides services to credit unions in Ontario and British Columbia – said PACE is “currently solvent and operating profitably." In 2017, PACE reported a $5.3-million profit, according to its annual report.

The chair of PACE’s board, Ian Goodfellow, did not respond to requests for comment.

The credit union also has oversight from two prominent former politicians. Frank Klees, who was an MPP for the Ontario Progressive Conservative Party from 1995 to 2014, joined the credit union’s board last April. And, in 2014, when PACE created an investment dealer subsidiary, PACE Securities Corp., former Ontario premier Ernie Eves was named its chairman.

Last year, executives at other credit unions raised concerns with DICO about an investment product created and marketed by PACE Securities, according to a source with knowledge of the discussions and correspondence reviewed by The Globe. But Mr. Hubert said the issues that led DICO to take control of PACE “had nothing to do with PACE Securities" or its subsidiaries.

Mr. Klees directed inquiries to a lawyer who could not immediately be reached. Mr. Eves did not respond to requests for comment.

October 5, 2018
5:00 am
savemoresaveoften
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I imagine "governance issues to be resolved" means they will have new president and CEO. If the business is sound and just compliance issues, another CU like Meridian will prob take them over.

October 5, 2018
5:13 am
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Does anyone else think this is peculiar?

"The trading strategy used by PCM has been developed by the principals over the past three years. PACE Capital Partners LP (PCP) uses leverage to purchase a portfolio of North American Corporate bonds rated between CCC+ and BBB-. PCP aims to provide clients with diversification across multiple industry sectors targeting an absolute return of in the range of 12% net of fees."
http://www.pacesecurities.com/node/20

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