Home Capital moves to shore up firm
Halts dividend, shakes up board in bid to restore confidence amid deposits’ slide
Embattled alternative mortgage lender Home Capital Group said Monday it has suspended its dividend to “prudently manage liquidity” and beefed up its board as its deposits continue to plummet and it draws more funding from its pricey emergency credit line.
It also named a new chair and added some Canadian business heavyweights to its board in its latest bid to restore confidence.
High interest savings account deposit balances at Home Capital’s subsidiary, Home Trust, are expected to fall more than 50 per cent to $192 million on Monday after the settlement of Friday’s transactions. Those deposits, which help Home Capital fund its mortgage lending, have fallen from $391 million one week earlier, and are down 90 per cent from roughly $1.991 billion on March 28.
In turn, the company says it has now drawn $1.4 billion from its $2-billion emergency backstop credit line. It drew $1 billion one week ago.
Home Capital shares rose as much as 16.75 per cent to close at $6.83 on Monday, but the stock is down more than 75 per cent since early April.
“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,” Home Capital said in a statement. “In addition, the Company announced the suspension of its quarterly dividend to prudently manage liquidity.”
Home Trust’s Guaranteed Investment Certificate deposits, which make up a larger share of its funding, also fell, to $12.64 billion as of May 5, as brokers say they’re wary of the mortgage lender’s deposit products. That balance, which includes Oaken Financial and broker GICs, is down from $12.86 billion on April 28, and $13.06 billion on March 28. Holders of these GICs may not redeem them early either because of a built-in penalty, or because the product is non-cashable and they are unable to.
These announcements come days after Home Capital said it was adding Alan Hibben, a former RBC Capital Markets managing director of mergers and acquisitions, to its board to replace the mortgage lender’s founder and former chief executive, Gerald Soloway.
Home Capital, which has retained RBC Capital Markets and BMO Capital markets to “advise on further financing and strategic options,” took more steps on Monday to revamp its board.
The Toronto-based company also announced that board member Brenda J. Eprile would replace Kevin Smith as chair of the board. Smith, who is also president and chief executive of St. Joseph’s Health System, will remain as an independent director.
The company named three new directors: Claude Lamoureux, former chief executive of the Ontario Teachers’ Pension Plan; Paul Haggis, former head of Ontario Municipal Employees Retirement System (OMERS) and risk consultant; and Sharon Sallow, risk consultant, former director at Ontario Teachers and former Ontario Securities Commission staffer.
“We have now come a very long way in a short time toward our goal of significant governance renewal,” Eprile said in a statement.
The company also confirmed that board member William Falk will step down from the board on May 11, as previously announced.
Stephen Boland, an analyst with GMP Securities, said the latest announcements were “positive” but do not change his company’s views on Home Capital’s liquidity position.
“We believe the company has enough liquidity to absorb a runoff of the remaining demand deposits and repay $325 million of debt when it comes due May 24th,” he said in a note to clients.
The company has been trying to shore up its liquidity and assuage investors and shareholders since the Ontario Securities Commission accused the mortgage lender, Soloway, former chief executive Martin Reid and chief financial officer Robert Morton of misleading disclosure on April 19.