Canada banks, insurer face up to Lehman fallout

Tue Sep 16, 2008 11:51am EDT
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By Lynne Olver

TORONTO (Reuters) - Canada's big banks largely shrugged off the weekend bankruptcy filing of Lehman Brothers Holdings LEH.N, but the third-largest Canadian life insurance company said on Monday it will take an unspecified hit to third-quarter earnings because of its Lehman bond holdings.

Canadian bank and insurance stocks fell after a dramatic weekend during which Lehman Brothers sought bankruptcy protection, Merrill Lynch MER.N agreed to be bought by Bank of America (BAC.N: Quote) and insurance giant American International Group (AIG.N: Quote) was waging a fight for survival.

The S&P/TSX financial index fell 1.9 percent on Monday, while the broader benchmark, the S&P/TSX composite, tumbled 4 percent as mining, energy and materials stocks were hammered.

Canadian banks are seen as relatively strong because they have solid deposit bases and the large Canadian investment banks are also part of the regulated commercial banking system, said Darren Dansereau, a portfolio manager at QV Investors in Calgary, Alberta, which owns shares in three Canadian banks.

But uncertainty about Canadian stocks lingers because of the unknown ripple effects from the woes of U.S. investment banks, he noted.

"The big underlying question is what sort of implications are there for credit derivative swaps, all these types of derivative instruments these guys have written?" Dansereau said.

Canadian insurer Sun Life Financial (SLF.TO: Quote) said on Monday it expects to take a quarterly charge on Lehman debt, but it said the amount will depend on a number of factors, including expected recoveries and actuarial cash flow testing that will not be done until after the quarter ends on September 30.

Sun Life said it holds C$334 million par value of Lehman bond securities and about C$15 million net value of Lehman derivative instruments.   Continued...