Home Capital Markets Dwight Duncan’s in a clear conflict on GM share sale

Dwight Duncan’s in a clear conflict on GM share sale

News report: Ontario pushing Ottawa to sell stake in GM

If there ever was a clear conflict of interest case in the political world, it would surely be the Ontario Finance Minister’s desire to sell our Province’s stake in General Motors in an effort to dress up the provincial deficit figure. Personal (ie. political) gain over a clear investing strategy.

According to my morning read, “the potential political gain of a smaller deficit” is driving the Minister’s thinking. Since we paid about double for the GM stake in the first place, I have to ask myself: who exactly is giving we taxpayers this stock-picking advice?

Is it a buy, or a sell? Are GM shares only going to go lower, making this the time to cut our losses? Good questions. According to Yahoo Finance, the median share price target of 17 analysts is $33, nicely above the current $25.88. Apparently, no one in the world of mainstream finance is worried about GM hitting the wall again right now. Other than the provincial Financial Minister that is:

“There are certain restrictions on how many we can move at once and so on, but the sooner we’re out of the stock the better. I just don’t think governments should be buying and holding stocks in private-sector companies.”

Well, at least we’ve established the rationale. Government’s should own stocks, apparently; although wasn’t Minister Duncan, of Windsor, aware that the GM shares came with the auto bailout deal he supported in 2008? Unfortunately, I fear that Minister Duncan’s out to lunch. The provincial treasury already indirectly owns billions upon billions of shares in private sector companies.

Just look at Ontario’s public sector pension plans. OMERS had 57.6% of its assets in public markets, with $125 million in RBC and $112 million in TD Bank, for example, as at the end of last year. Ontario Teachers Pension Plan had $51.7 billion in equities at last check; 79% of which was outside of Canada (seems like 10 years ago when that number was capped at 20%).

Although the rise and fall of these public equity positions isn’t as visible to Minister Duncan on a daily basis, tough market times can create circumstances where the Province finds itself in a deficit with any of its largest plans. And those deficits usually create the need, under separate legislation, for special one-time solvency payments on the part of the employer. Now, the OTPPB formula is more complicated than that, but I think you get the point.

Ontario is already long the public markets, and the underlying securities, whether it likes it or not.

Is there a more stark conflict of interest for Minister Duncan to even have the power to weigh taking a loss on our GM share purchase against the notional political benefit to the governing party of using the GM proceeds to reduce the budget deficit? He certainly needs a better excuse than the one about Ontario not being in the private stock-owning business; he’s already long.

MRM

 
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