Cash-strapped Home Capital to sell up to $1.5B in mortgages
Fate of subprime lender watched by investors
TORONTO — Shares of Home Capital Group shot up Tuesday after it announced that an independent third party expressed interest in buying up to $1.5 billion of its mortgage assets, a move intended to reinstill confidence in the cashstrapped lender.
The company — which has seen customers withdraw more than $1 billion from their accounts recently — said the unidentified party has indicated a non-binding intention to buy at least $500 million of qualifying uninsured mortgages immediately.
The unidentified buyer could also purchase up to $500 million of additional uninsured mortgages as well as up to $500 million in insured mortgages, Home Capital said.
The lender, which uses money deposited into GICs and savings accounts to help fund its mortgage products, didn’t disclose what the buyer would pay or when a firm deal would be concluded.
The company’s shares soared 29.72 per cent, or $2.03, to close at $8.86 on the S&P/TSX composite index.
The company’s interim CEO, Bonita Then, said the proposed sale is designed to give Home Capital the ability to continue serving as many customers as possible through its network of mortgage brokers.
“This is another step forward in the company’s efforts to restore confidence in our operations,” added Home Capital board chair Brenda Eprile in a statement.
Home Capital said it is also tightening its lending criteria and reducing some of its broker incentive programs — moves that it said could reduce the number of its new mortgages and renewals.
The fate of the subprime mortgage lender is being closely watched by investors, regulators and governments, as some market observers worry its woes could undermine the broader Canadian financial sector.
On Monday, the company said it has drawn $1.4 billion from a $2billion emergency line of credit provided by the Healthcare of Ontario Pension Plan, one of Ontario’s largest public-sector pension funds.
Home Capital’s share price has been under pressure in recent weeks following allegations from the Ontario Securities Commission that the company and three senior executives misled investors in their handling of falsified loan applications.
The company has vowed to defend itself against the allegations, which it says are without merit. Lawyers for the three men haven’t responded to requests for comment.
The lender has made a number of changes to its board recently in a bid to boost investor confidence. Last week it announced it is replacing company founder Gerald Soloway with former Royal Bank executive Alan Hibben.
Also Monday, Home Capital announced the addition of three new board members, including two former CEOs of major Ontario pension funds, and named Eprile as chair. Eprile, who joined the Home Capital board last year, replaces Kevin Smith, who will remain on the board.
Home Capital says it has entered into an arrangement with an independent third party that is interested in buying up to $1.5 billion of its mortgage assets. A date for the deal with the unidentified buyer is unknown.