Canada to Close One Bank and Reorganize a Second

The Canadian government has announced plans to liquidate Canadian Commercial Bank only five months after arranging a $186-million U.S. bail-out of the institution.

Minister of State for Finance Barbara McDougall said in a statement late Sunday that the bank was no longer viable and could not pay its debts. It is the first forced liquidation of a Canadian bank in at least 50 years.

At the same time, the federal government said it would reorganize the Calgary-based Northland Bank, which has assets of $992.8 million. Northland, which never recovered from the 1982 economic recession, recently sold off $73 million worth of doubtful loans.

Small Profit at Northland

Despite its problems, Northland maintained a small profit. It recently announced net income of $1.53 million for the nine months ended July 31, down slightly from $1.68 million a year earlier.

In June, Canadian Commercial Bank posted a loss of $15.7 million for the first six months of 1985. Despite a $186-million bail-out from federal and provincial governments and the country’s major banks, Canadian Commercial continued to suffer from non-earning loans and the depreciation of more than $1 million worth of stocks in which the bank had invested.

‘Imprudent Lending’

A federal investigation into Canadian Commercial, completed in June, was sharply critical of the bank’s operations. A report by the government said the bank’s history is marked by “imprudent lending practices dating back to the late 1970s, questionable accounting policies, inadequate information disclosure and lack of supervisory enforcement.”

Canadian Commercial had concentrated is loans in the energy and real estate sectors. In 1981, the bank purchased a 39.1% equity interest in Westlands Bank of Santa Ana, which carried some $90 million in bad loans.