Lender aiming to settle with regulators, sources say

Home Capital Group Inc. is in discussions about a possible settlement with regulators over allegations of misleading disclosure related to the discovery of falsified income documentation on some mortgages, sources say.

Though there is no guarantee a settlement will be reached, people familiar with the process say ongoing talks with the Ontario Securities Commission are aimed at a settlement that would include both the firm and the accused individuals: founder Gerald Soloway, former chief executive Martin Reid and former chief financial officer Robert Morton.

Shares of Home Capital rose by more than 10 per cent Thursday, the biggest gain in nearly a month. Company watchers said the stock moved based on speculation about a regulatory settlement combined with the firm’s stabilizing liquidity position. The latter is seen to strengthen Home Capital’s negotiating power as it tries to sell assets or set up longer-term financing to continue as a going concern.

“With liquidity looking to have stabilized, HCG may have steadied the ship, giving them time to consider more options,” said Jeff Fenwick, an analyst at Cormark Securities Inc.

He said the less-dire financial situation — the company’s deposit base is stabilizing and its guaranteed investment certificates (GICs) are termed out longer than maturing mortgages for the next several quarters — gives Home Capital “leverage to demand higher bids” in an auction of assets.

Investment bankers at RBC Capital Markets and BMO Capital Markets were hired in April to look at options, including a sale of Home Capital’s portfolio of mortgages or the entire company, which was facing a liquidity crisis.

However, company watchers say Home Capital is now viewing the improved liquidity position as an opportunity to refinance an expensive $2-billion line of credit by the end of the month and potentially secure better terms for any sale.

Lawyers for Home Capital and the individuals named in the OSC’s statement of allegations could not be reached for comment on the settlement talks. A spokesperson for the OSC declined to comment.

The next public hearing in the OSC’s case is in late June.