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Canada's Home Capital considers strategic options as deposits slump
April 27, 2017 / 1:42 PM / 4 months ago

Canada's Home Capital considers strategic options as deposits slump

The entry to the Home Capital Group's headquarters are seen in an office tower in the financial district of Toronto, Ontario, Canada, April 26, 2017.Chris Helgren

TORONTO (Reuters) - Canadian alternative lender Home Capital Group Inc said on Thursday that it had hired bankers to help it secure additional funding and assess its options as it reported a further sharp decline in its assets.

Its shares ended 33.9 percent higher at C$8.02, offsetting some of Wednesday's 60 percent plunge after the company first disclosed plummeting deposits and an agreement in principle for a $2-billion credit line.

The subprime lender has suffered a crisis of confidence since a securities regulator alleged its top executives hid mortgage broker fraud from investors earlier this month, just as Ontario's provincial government introduced measures to cool Toronto's red-hot housing market.

Home Capital relies on high-interest yielding deposits to offer mortgages to applicants who have been unable to get loans from the country's big banks. Almost 80 percent of Home Capital's mortgages are in Ontario.

But depositors have withdrawn more than half of Home Capital's high-saving interest accounts, while the total balance of its larger pool of less-liquid guaranteed investment certificates fell to C$12.98 billion as of April 25 from C$13.06 billion on March 28.

Home Capital said that it had liquid assets of C$1.3 billion ($955 million) as of April 25, compared with C$1.5 billion the day before.

"There is a great deal of value in Home's business, and we provide a key service to an important segment of Canadian homebuyers," the company's chairman, Kevin Smith, said in an emailed statement.

"As rough as the past few days have been, we are very focused on getting this company back on track and doing everything we can to make that happen."

Home Capital has hired RBC Capital Markets and BMO Capital Markets "to advise on further financing and strategic options" and secured a high-interest C$2 billion credit line from "a major Canadian institutional investor" as it hunts for better terms elsewhere.

Canadian media on Thursday identified the lender as the Healthcare of Ontario Pension Plan (HOOPP), which counts 321,000 Ontario healthcare workers and retirees as members, has about C$70.4-billion in assets, and whose CEO sits on Home Capital's board.

Shares in the country's biggest banks also took a hit on Thursday even though analysts said Home Capital's problems are unlikely to damage the wider Canadian mortgage market or the value of the real estate that underpins it. [L1N1HZ1Y8].

Home Capital had a mortgage book of about C$15 billion ($11 billion) at the end of 2016, a tiny slice of Canada's C$1.44 trillion residential mortgage market.

Non-performing loans account for just 0.24 percent of its loan book, down from 0.34 percent a year earlier, and the quality of its lending book has led analysts to believe the lender may find a buyer or may be able to sell some assets.

"We see value - but who will realize it?" the headline of a Macquarie Research note asked, a question that may depend on how quickly the company stop the withdrawal of deposits.

Dylan Steuart, a financial services analyst at Industrial Alliance Securities, said its shares could be worth C$13.50 if the company is able to hire an experienced management team to replace those tarred by the OSC's allegations and stem the outflow of deposits.

($1 = 1.3617 Canadian dollars)

Reporting by Alastair Sharp; Editing by Clive McKeef

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