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Zag Bank's assets to be transferred to Desjardins Trust Inc.
January 17, 2020
1:46 pm
Doug
British Columbia, Canada
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Retroactive to January 1, 2020, Desjardins Group and Zag Bank have jointly applied to the Minister of Finance and to OSFI for the sale and transfer of remaining assets (principally, Zag's remaining mortgages and CDIC-insured deposits) to CDIC member subsidiary, Desjardins Trust Inc.

Web link: http://www.gazette.gc.ca/rp-pr.....g.html#ml3

Following that, Zag Bank would cease to be a CDIC member issuer and concurrently dissolved.

Standard CDIC deposit limits with respect to pre-existing deposits in the target institution apply. Since Desjardins Trust Inc. principally issues deposits in book-entry, nominee form, I will refrain from offering advice as to how this will impact your CDIC deposit limits.

Nevertheless, those with Zag Bank GICs will have their deposit limits impacted if and depending on how they hold their Desjardins Trust Inc. deposits.

No date specified, but this is likely imminent and I expect this to take formal effect by March 2020 (30-60 days from today's date).

Cheers,
Doug

January 17, 2020
7:37 pm
Bud
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those who held 5yr gics i guess others have matured

GIC King

January 18, 2020
11:11 am
Doug
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Bud said
those who held 5yr gics i guess others have matured  

Largely, yes, but there are likely some with 3-4 year GICs still, who renewed up until last year when no renewals were permitted. 🙂

Cheers,
Doug

February 9, 2020
2:20 am
Loonie
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I will cheerfully admit to great ignorance on this subject, but...
It says they are transferring Zag's assets, and you suggest that would include customers' deposits such as GICs.
But wouldn't said deposits be liabilities of the bank rather than assets? They are responsible for the money (or CDIC is), they may or may not even have it, but they owe it.

Just wondering. It doesn't affect me personally.

February 9, 2020
6:00 am
canadian.100
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Loonie said
I will cheerfully admit to great ignorance on this subject, but...
It says they are transferring Zag's assets, and you suggest that would include customers' deposits such as GICs.
But wouldn't said deposits be liabilities of the bank rather than assets? They are responsible for the money (or CDIC is), they may or may not even have it, but they owe it.

Just wondering. It doesn't affect me personally.  

You are correct that the Deposits and GICS which were Liabilities on the Balance Sheet of Zag do become Liabilities on the Balance Sheet of Desjardins. Remember that the Mortgages and Loans (which were Assets on Zag's Balance Sheet) are also transferred to Desjardins and become Assets on Desjardins Balance Sheet.)
Perhaps it would be clearer to say that the Net Assets of Zag were transferred to Desjardins. Normally a business' Assets exceed Liabilities on their Balance Sheets, otherwise they may be unable to meet their obligations - perhaps that is what happened to Zag - OSFI stepped in and a deal was made with Desjardins to protect depositors etc.

February 9, 2020
6:40 am
Bill
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When you buy a $100 GIC from an fi at that moment they have $100 cash (asset) and an equivalent $100 obligation to you (liability), both sides of balance sheet increased so no net gain to fi, it's in the same position. As are you. Is my understanding.

February 9, 2020
8:56 am
Norman1
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It is actually not a transfer but a sale of assets.

The notice in the Canada Gazette says Zag Bank is asking the Minister of Finance to approve a sale agreement to "sell all or substantially all of its assets to Desjardins Trust pursuant to subsection 232(1) of the Bank Act."

Subsection 232(1) requires that the purchaser "assumes all or substantially all of the liabilities" of the selling bank as part of the sale transaction. That would include liabilities for the deposits:

Sale by bank

232 (1) A bank may sell all or substantially all of its assets to a financial institution incorporated by or under an Act of Parliament or to an authorized foreign bank in respect of its business in Canada if the purchasing financial institution or authorized foreign bank assumes all or substantially all of the liabilities of the bank.

February 9, 2020
11:56 am
Doug
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Norman1 said
It is actually not a transfer but a sale of assets.

The notice in the Canada Gazette says Zag Bank is asking the Minister of Finance to approve a sale agreement to "sell all or substantially all of its assets to Desjardins Trust pursuant to subsection 232(1) of the Bank Act."

Subsection 232(1) requires that the purchaser "assumes all or substantially all of the liabilities" of the selling bank as part of the sale transaction. That would include liabilities for the deposits:

Sale by bank

232 (1) A bank may sell all or substantially all of its assets to a financial institution incorporated by or under an Act of Parliament or to an authorized foreign bank in respect of its business in Canada if the purchasing financial institution or authorized foreign bank assumes all or substantially all of the liabilities of the bank.

  

I don't think you were replying to me, specifically, Norman, as I did note it was an asset sale.

Practically speaking, does this mean that those depositors of Zag Bank have their existing CDIC limits continue, or they'd be comingled within their Desjardins Trust CDIC limit for that deposit type and depositor and that Desjardins/Desjardins Trust has agreed to guarantee the pre-existing deposit liabilities in excess of the combined $100,000 limit?

Also, are you, or were you, in a previous life, a lawyer and, if so, in what area(s) did you practice?

Cheers,
Doug

February 12, 2020
6:49 pm
Norman1
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Under CDIC Act subsection 13(3), assumption is treated as a deemed amalgamation for CDIC coverage:

Where assets acquired

13 (3) For the purpose of deposit insurance with the [Canada Deposit Insurance] Corporation, if a member institution assumes deposit liabilities of another member institution, those member institutions are deemed to be amalgamating institutions and subsections (1) to (2.1) apply if a person has deposits with both institutions.

Subsection 13(1) provides that deposits one has in one amalgamating member will initially remain separate from the deposits one has in the other member for the purposes of CDIC coverage:

Deposits with amalgamating institutions

13 (1) When a person has deposits with two or more member institutions that amalgamate and continue in operation as one member institution, in this section referred to as the “amalgamated institution”, a deposit of that person with an amalgamating institution on the day on which the amalgamated institution is formed, less any withdrawals from the deposit, shall, for the purposes of deposit insurance with the Corporation, be deemed to be and continue to be separate from any deposit of that person on that day with the other amalgamating institution or institutions that become part of the amalgamated institution for a period of two years or, in the case of a term deposit with a remaining term exceeding two years, to the maturity of the term deposit.

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