Home Cap­i­tal re­ports doubt about fu­ture fund­ing abil­ity

The Hamilton Spectator - - BUSINESS - JOANNA FRKETICH

TORONTO — Home Cap­i­tal Group has re­ported “ma­te­rial un­cer­tainty” re­gard­ing its fu­ture fund­ing ca­pa­bil­i­ties may cast “sig­nif­i­cant doubt” upon the com­pany’s abil­ity to con­tinue as a go­ing con­cern.

Canada’s largest al­ter­na­tive mort­gage lender said Thurs­day it’s grap­pling with re­cent “rep­u­ta­tional con­cerns” as it re­ported a slight dip in first-quar­ter prof­its com­pared to a year ago.

The Toronto-based com­pany’s fi­nan­cial state­ment shows it earned $58 mil­lion or 90 cents a share in the first three months, slightly less than the $64.2 mil­lion in earn­ings or 92 cents a share re­ported in the first quar­ter of 2016.

“The in­terim con­sol­i­dated fi­nan­cial state­ments for the first quar­ter ended March 31, 2017 were pre­pared on a go­ing con­cern ba­sis,” states the re­port. “How­ever, man­age­ment be­lieves that ma­te­rial un­cer­tainty ex­ists re­gard­ing the com­pany’s fu­ture fund­ing ca­pa­bil­i­ties as a re­sult of rep­u­ta­tional con­cerns that may cast sig­nif­i­cant doubt upon the com­pany’s abil­ity to con­tinue as a go­ing con­cern.”

Home Cap­i­tal has faced liq­uid­ity trou­bles in re­cent weeks as cus­tomers have been with­draw­ing their de­posits, which the com­pany uses to fund its mort­gage lend­ing.

The com­pany’s stock has been un­der pres­sure since the On­tario Se­cu­ri­ties Com­mis­sion al­leged that the com­pany and three of its ex­ec­u­tives mis­led in­vestors in their han­dling of a scan­dal in­volv­ing fal­si­fied loan ap­pli­ca­tions. The com­pany has vowed to de­fend it­self against the al­le­ga­tions.

The com­pany’s earn­ings re­port didn’t di­rectly men­tion the al­le­ga­tions, but re­ferred to “liq­uid­ity” and “rep­u­ta­tional” events that have re­duced its ac­cess to mort­gage and de­posit mar­kets through bro­ker net­works. It says the ex­tent that ac­cess will be re­duced go­ing for­ward is un­cer­tain.

St. Joseph’s Health Sys­tem CEO Kevin Smith stepped down from his $357,500-a-year po­si­tion as chair of the Home Cap­i­tal board Mon­day. The Hamil­ton health care leader re­mains a direc­tor of the board which pays him $100,000 an­nu­ally. In the past Smith has taken his pay en­tirely in de­ferred share units which were worth $1.6 mil­lion in De­cem­ber. As of Thurs­day night, they were val­ued at around $543,000.

Brenda Eprile, the new head of the board of di­rec­tors, noted the com­pany is tak­ing steps to ad­dress its im­age, point­ing to this week’s ap­point­ment of four new di­rec­tors to its board, in­clud­ing Claude Lamoureux, the for­mer chief ex­ec­u­tive of­fi­cer of the On­tario Teach­ers’ Pen­sion Plan.

The com­pany also re­placed com­pany founder Ger­ald Soloway with for­mer Royal Bank ex­ec­u­tive Alan Hibben last week.

Eprile said the com­pany is con­tin­u­ing its search for a new CEO and chief fi­nan­cial of­fi­cer.

Home Cap­i­tal said in a news re­lease Thurs­day that it has roughly $128 mil­lion in its high in­ter­est sav­ings ac­counts — down from $134 mil­lion on Wed­nes­day and a sharp de­cline from $1.4 bil­lion just over two weeks ago. Mean­while, its to­tal GIC de­posits stood at $12.54 bil­lion — down from $12.58 bil­lion on Mon­day and $13.01 bil­lion on April 24. How­ever, shares of Home Cap­i­tal gained 23.4 per cent, or $2.05, to $10.81 on the Toronto Stock Ex­change on Thurs­day in ad­vance of the re­port on its earn­ings.

The quar­terly re­port also re­vealed that a $2-bil­lion line of credit from the Health­care of On­tario Pen­sion Plan is se­cured against a port­fo­lio of mort­gages to­talling $5.4 bil­lion as of May 9.

With files from the Cana­dian Press jfr­ketich@thes­pec.com 905-526-3349 | @Jfr­ketich

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