The Toronto-based bank, facing a run on bank deposits, said it will suspend its quarterly dividend, according to a statement released today
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by David Scanlan and Maciej Onoszko
Home Capital Group Inc. suspended its dividend and added two former pension fund executives to its board as the mortgage lender tries to win back shareholder trust following accusations that it misled investors over fraudulent loan applications.
The Toronto-based bank, facing a run on bank deposits, said it will suspend its quarterly dividend to “manage liquidity,” according to a statement Monday. The company’s high-interest savings accounts, used to fund its mortgages, have slipped to C$192 million ($140 million), from almost C$2 billion five weeks ago. The guaranteed investment certificates, or GICS, fell to C$12.6 billion, from C$12.9 billion last month.
The run on deposits and the regulatory accusations have forced the company to consider a sale amid concerns the fallout may spark a selloff in the real estate market, which has been a key driver of growth for the Canadian economy.
Home Capital was forced to take out a C$2 billion credit line with an Ontario pension fund last month, at an effective rate of 22.5 percent for the first half of it. The Canadian mortgage lender said Monday it has drawn C$1.4 billion from the credit line, and has C$1.16 billion in liquid assets as of May 5.
The company has found support for its bonds that mature May 24. Canadian Imperial Bank of Commerce said it has a Canadian institutional buyer for as much as C$100 million of the 2.35 percent debt. The offer is for 92.5 cents on the dollar, according to an emailed statement from the Toronto-based bank, which declined to identify the buyer. The bonds, which have C$325 million outstanding, were quoted at about 94 cents as of 8:38 a.m. in Toronto on Monday, according to a trader who declined to be identified.
Home Capital continued to shake up its board, adding Claude Lamoureux, Paul Haggis and Sharon Sallows. Lamoureux is the former head of the Ontario Teachers’ Pension Plan, Sallows is a former director at Ontario Teachers and sits on the board of RioCan Real Estate Investment Trust, a Canadian mall developer, while Haggis is the former head of the Ontario Municipal Employees Retirement System. Director Brenda Eprile becomes chair, replacing Kevin Smith, who remains on the board. Lamoureux is also the founder of the Canadian Coalition for Good Governance.
RBC Banker
Alan Hibben, a former RBC Capital Markets managing director who specialized in mergers and acquisitions, last week replaced Home Capital founder Gerald Soloway, whom the Ontario Securities Commission named as one of the executives who allegedly misled investors.
Shares of Home Capital fell as much as 14 percent on Monday, extending their decline to about 80 percent since April 19, when the OSC made the allegations public.
Home Capital’s meltdown has shaken confidence in Canadian markets, weakening bank stocks and helping send the loonie to a 14-month low against the U.S. dollar. The Canadian dollar was down 0.5 percent at 1.3715 per greenback, extending its loss since April 19 to 1.7 percent, the second worst performance among major currencies after the yen.
Contagion Risk
The risk from Home Capital doesn’t stem from the company’s size or linkages -- it holds only about 1 percent of Canadian mortgages and these are on its own books, which limits spillovers. However a disorderly fallout from Home Capital would damage a sector which is driving Canadian growth. Real estate, residential construction and finance sectors were responsible for around two-fifths of output in Canada’s fastest growing provinces.
Home Capital is raising questions from investors who are comparing Canada’s housing market to troubles in the U.S. that tipped the world into a crisis in 2008.
The jury’s still out on whether the comparison is correct, but policy makers have acknowledged that Canada’s housing market is red-hot and the magnitude of gains in house prices is divorced from reality.
Copyright Bloomberg 2017
Related stories:
Income funds frozen following OSC investigation
Can your clients ignore macro pressures?
Home Capital Group Inc. suspended its dividend and added two former pension fund executives to its board as the mortgage lender tries to win back shareholder trust following accusations that it misled investors over fraudulent loan applications.
The Toronto-based bank, facing a run on bank deposits, said it will suspend its quarterly dividend to “manage liquidity,” according to a statement Monday. The company’s high-interest savings accounts, used to fund its mortgages, have slipped to C$192 million ($140 million), from almost C$2 billion five weeks ago. The guaranteed investment certificates, or GICS, fell to C$12.6 billion, from C$12.9 billion last month.
The run on deposits and the regulatory accusations have forced the company to consider a sale amid concerns the fallout may spark a selloff in the real estate market, which has been a key driver of growth for the Canadian economy.
Home Capital was forced to take out a C$2 billion credit line with an Ontario pension fund last month, at an effective rate of 22.5 percent for the first half of it. The Canadian mortgage lender said Monday it has drawn C$1.4 billion from the credit line, and has C$1.16 billion in liquid assets as of May 5.
The company has found support for its bonds that mature May 24. Canadian Imperial Bank of Commerce said it has a Canadian institutional buyer for as much as C$100 million of the 2.35 percent debt. The offer is for 92.5 cents on the dollar, according to an emailed statement from the Toronto-based bank, which declined to identify the buyer. The bonds, which have C$325 million outstanding, were quoted at about 94 cents as of 8:38 a.m. in Toronto on Monday, according to a trader who declined to be identified.
Home Capital continued to shake up its board, adding Claude Lamoureux, Paul Haggis and Sharon Sallows. Lamoureux is the former head of the Ontario Teachers’ Pension Plan, Sallows is a former director at Ontario Teachers and sits on the board of RioCan Real Estate Investment Trust, a Canadian mall developer, while Haggis is the former head of the Ontario Municipal Employees Retirement System. Director Brenda Eprile becomes chair, replacing Kevin Smith, who remains on the board. Lamoureux is also the founder of the Canadian Coalition for Good Governance.
RBC Banker
Alan Hibben, a former RBC Capital Markets managing director who specialized in mergers and acquisitions, last week replaced Home Capital founder Gerald Soloway, whom the Ontario Securities Commission named as one of the executives who allegedly misled investors.
Shares of Home Capital fell as much as 14 percent on Monday, extending their decline to about 80 percent since April 19, when the OSC made the allegations public.
Home Capital’s meltdown has shaken confidence in Canadian markets, weakening bank stocks and helping send the loonie to a 14-month low against the U.S. dollar. The Canadian dollar was down 0.5 percent at 1.3715 per greenback, extending its loss since April 19 to 1.7 percent, the second worst performance among major currencies after the yen.
Contagion Risk
The risk from Home Capital doesn’t stem from the company’s size or linkages -- it holds only about 1 percent of Canadian mortgages and these are on its own books, which limits spillovers. However a disorderly fallout from Home Capital would damage a sector which is driving Canadian growth. Real estate, residential construction and finance sectors were responsible for around two-fifths of output in Canada’s fastest growing provinces.
Home Capital is raising questions from investors who are comparing Canada’s housing market to troubles in the U.S. that tipped the world into a crisis in 2008.
The jury’s still out on whether the comparison is correct, but policy makers have acknowledged that Canada’s housing market is red-hot and the magnitude of gains in house prices is divorced from reality.
Copyright Bloomberg 2017
Related stories:
Income funds frozen following OSC investigation
Can your clients ignore macro pressures?
