HOME CAPITAL CASTS DOUBT ON ABILITY TO CONTINUE OPERATIONS.

IN TALKS WITH U. S. BUYOUT FIRMS TO SELL PARTS OF PORTFOLIO

• Alternative mortgage l ender Home Capital Group Inc. said Thursday discussions with potential investors on the sale of certain loan portfolios are on the table to shore up its liquidity, but uncertainty around its future funding abilities casts “significant doubt on the Company’s ability to continue as a going concern.”

Canada’s l argest nonbank lender, which released its first- quarter earnings on Thursday more than three hours after market close, made these comments as it continues to see a run on its funding with clients continuing to withdraw their demand deposits from its subsidiary, Home Trust, jeopardizing a funding source for its mortgages.

“Potential future impact resulting from reputational concerns is inherently difficult to predict,” Home Capital said late Thursday, in its management discussion and analysis as part of its latest earnings release. “Therefore management believes that material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern.”

For the quarter ended March 31, Home Capital reported diluted earnings per share of 90 cents and $ 1.02 adjusted diluted earnings per share basis, compared to 92 cents and 96 cents a year ago.

That beat the 96.5 cents adjusted diluted earnings per share analysts had expected, according to those surveyed by Bloomberg.

Home Capital also reported net income of $ 58.0 million and adjusted net income of $ 65.5 million, compared to $ 67.49 million and $ 67.5 million in the same period one year ago. Analysts expected adjusted net income of $ 64.786 million for the latest quarter.

The company had originally been scheduled to release its results on May 3. The EPS figures matched those it had pre- announced its earnings on April 21 to assuage the market. The official release was postponed last week to allow Home Capital management to update for events that have occurred since the close of the first quarter.

Analysts had not expected a major departure from Home Capital’s pre- announced earnings as the company’s liquidity struggles and crisis of confidence occurred after the quarter ended on March 31.

All eyes, however, was on any commentary the embattled mortgage lender had on the way forward.

“Management’s focus is on finding more sources of funding in the near term so we can be more active serving our customers, and on seeking longer-term solutions that put the business back on track,” said Bonita Then, Home Capital’s interim chief executive officer said in a statement late Thursday.

The company will be facing tough questions from analysts on a conference call Friday morning as it has been mired in liquidity problems and a crisis of confidence since the OSC filed formal allegations on April 19 against Home Cap- ital, and three of its current and former executives.

The securities regulator has accused them of misleading shareholders after the discovery of falsified information in its mortgage broker channel, and the subsequent firing of 45 brokers in 2014 and 2015.

Home Capital has said the allegations are without merit, and has vowed to defend its approach to disclosure during the OSC proceedings, which began last week.

Since t he all egations emerged, deposit holders have withdrawn the majority of the money held in high-interest savings accounts with Home Capital’s subsidiary, Home Trust, which help fund its mortgage lending.

Home Capital continues to see this partial run on its funding, albeit at a slower pace.

The Toronto-based lender said Thursday its high-interest savings accounts balances are expected to fall roughly 4 per cent to $128 million after the settlement of Wednesday’s transactions. That’s compared to an 8 per cent drop on Tuesday. Those balances are down from $1.4 billion on April 24, and $1.991 billion on March 28.

The company is looking to divest about $2 billion in assets to help pay down the high- interest loan - which analysts pegged at an effective interest rate of 22.5 per cent for the first $1-billion - and delay a potential sale of the entire company, Reuters reported Thursday, citing people familiar with the situation.

Home Capital intends to sell all or part of its commercial mortgage portfolio, its consumer finance business and a small portion of its traditional residential mortgage portfolio to raise the $2 billion, the people told Reuters.

Those in active talks with Home Capital about potentially purchasing its assets include U. S. buyout firms Cerberus Capital Management L.P., Fortress Investment Group LLC and Apollo Global Management LLC, the people told Reuters, declining to be named as the matter is not public.

Shares of Home Capital on Thursday were up by as much as 24 per cent, to $ 10.90 in early afternoon trading, from $8.76 at market close on Wednesday. The company’s stock closed at $10.81 on Thursday, up 23.4 per cent. Shares are down roughly 51.2 per cent since April 19.

Home Capital had said last month it retained BMO Capital Markets and RBC Capital Markets to “advise on further financing and strategic options.”

Home Capital has now drawn $ 1.4 billion from the costly emergency credit line from a syndicate of lenders led by the Healthcare of Ontario Pension Plan.

Home Capital’s l i quid assets stood at about $1.02 billion as of end of day May 10, compared to $1.01 billion the day before.