Home Capital reports doubt about future funding ability
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