Home Capital’s Bank Run Accelerates As Company Scrambles To Find Additional Liquidity

Just two work days after we reported that Home Capital had already used up half of its C$2 billion emergency “lifeline” credit facility (yielding 22.5%) and was seeking additional emergency funding, on Monday Canada’s most troubled alt-mortgage lender provided a liquidity update in which it said that it had drawn an addition C$400 million on its loan, leaving just C$600 million available. At the same time, the company confirmed that the bank run at subsidiary Home Trust has failed to slowdown, and as of May 8 “deposit balances are expected to be approximately $192 million.” According to the latest data, another 50% of deposits have been pulled in the past week, and are now down over 90% since March 28.

Additionally, the company announced that its all important Total Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICs, stood at $12.64 billion as at May 5, 2017 compared with $12.86 billion as at April 28, 2017. Oaken savings accounts stood at $167 million as at May 5, 2017 compared $222 million as at April 28, 2017.

Home Capital said that its total liquid assets stood at $1.160 billion as of end of day May 5, 2017, a number which is shrinking rapidly with each passing day.

In an amusing addition, the company said that “its advisers continue to work towards seeking lower cost sustainable funding solutions and to evaluate strategic alternatives to solidify and strengthen its successful mortgage origination platform. “

Good luck with that.

Full statement below:

Home Capital Group Inc. (“The Company” TSX: HCG) today announced that it has drawn down a total of $1.4 billion from its $2 billion credit line, the terms of which were announced by the Company on April 27, 2017.

The Company and its advisers continue to work towards seeking lower cost sustainable funding solutions and to evaluate strategic alternatives to solidify and strengthen its successful mortgage origination platform.

In addition, the Company announced the suspension of its quarterly dividend to prudently manage liquidity.  The Company’s existing mortgage portfolio continues to perform well. The Company’s liquid assets stood at $1.160 billion as of end of day May 5, 2017.

Home Trust’s High Interest Savings Account (HISA) deposit balances are expected to be approximately $192 million on Monday, May 8, 2017 after the settlement of transactions that took place on Friday, May 5, 2017.

Total Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICs, stood at $12.64 billion as at May 5, 2017 compared with $12.86 billion as at April 28, 2017. Oaken savings accounts stood at $167 million as at May 5, 2017 compared $222 million as at April 28, 2017.

Home Trust’s GICs and HISA deposits are eligible for Canada Deposit Insurance Corp. coverage.

In a separate release, Home Capital announced that it was adding 3 new members to its board as it was continuing “governance renewal process,” adding Claude Lamoureux, former Ontario Teachers’ Pension Plan CEO/co-founder of Canadian Coalition for Good Governance, Paul Haggis, former Omers CEO, and Sharon Sallows to board.  HCG also appointed Brenda Eprile board chair; Eprile joined board as an independent director in 2016; replaces Kevin Smith, who remains on board as independent director. HCG confirmed that as reported previously, William Falk stepping down.

Finally, HCG set the annual meeting for June 29 in Toronto. It is sure to be an exciting affair.