Natcan Investment Management Inc., a subsidiary of National Bank, has signed on as a plaintiff in a U.S. class-action lawsuit filed against Citigroup Inc. over its dealings with Enron Corp.
The move signals a new mood of institutional activism in Canada, underscoring the depth of change that U.S. frauds involving Enron and WorldCom have prompted in the once-secretive world of money managers.
Montreal-based Natcan oversees $18 billion worth for pension funds, endowment funds, pooled funds and wealth management. National Bank is both its majority owner and its largest client.
The lawsuit alleges Citigroup misrepresented a 1999 transaction with Enron to help the energy trader keep $125 million US in debt off its books. It also claims Citigroup hid the true extent of its potential liability arising from its structured finance dealings with the disgraced energy trader.
After executives at Citigroup and J.P. Morgan testified about the relevant transactions before the U.S. Senate on July 23, Citigroup stock plunged more than 16 per cent on the New York Stock Exchange to close at $27 US, wiping out $25 billion in shareholder value. The suit seeks to recover unspecified damages.
“In the case of Enron, a lot of people lost money and, when it came to Citigroup, we just felt there was a case there and we felt that we should be involved,” said Sam Reda, Natcan’s chief executive.
“We see ourselves as having a fiduciary role we’re managing money for a lot of pension funds and a lot of people who have RRSPs and mutual funds. Our job is managing our clients’ money, and we have to do what’s best for them.”
But it’s unusual for one financial institution to take part in a class-action lawsuit against another because they often find themselves as partners in underwriting syndicates or financings.
Citigroup is the world’s second-largest financial services company and counts Salomon Smith Barney, one of the largest underwriters in the world, among its subsidiaries.
Reda said that as a separate subsidiary of National Bank, Natcan is not required to consult anyone on this type of decision — although there was no indication the bank would be opposed.
Natcan’s strong action in support of its clients stands in stark contrast to the reaction of Canadian fund managers after the market frauds at Bre-X Minerals Ltd. and YBM Magnex International Inc. in the 1990s.