Canadian subprime lenders race to shore up confidence as deposits withdrawn

TORONTO: Canadian subprime mortgage lenders raced to shore up confidence in their model as depositors pulled more money out of Home Capital Group Inc’s high-interest savings accounts while another lender lined up C$2 billion in emergency funding.

Canada’s No. 2 listed alternative lender Equitable Group said it has taken steps to reinforce its liquidity position on Monday after it experienced a quickened pace of withdrawals late last week.

Meanwhile, Home Capital, Canada’s biggest alternative lender, said it expected to draw down half of a C$2 billion ( US$1.46 billion) credit line that it secured last week, as it seeks to offset the impact of a steep fall in highinterest savings accounts ( HISA) deposits.

Withdrawals from Home Capital’s HISA accelerated last week after its founder joined the ranks of recent executive exits tied to a securities regulator probe.

The regulator has accused the company of making “materially misleading statements” to investors. The troubles at Home Capital, which provides subprime mortgage loans and has seen a 73 per cent decline in HISA deposits since March 30, has raised fears it may be the first sign of a crack in Canada’s red- hot housing market, which some have called a bubble.

In Toronto alone, house prices surged 33 per cent in March from a year ago, prompting authorities to take a series of measures, including a 15-per cent foreign buyers’ tax, last month.

Equitable said it got the C$2.0 billion funding facility from a syndicate of Canadian banks on Monday.

“We are conf ident in the fundamentals of our business and our funding model, but owing to these recent events we have taken steps to reinforce our liquidity position,” it said in a statement.

Equitable shares rose 28.5 per cent at C$ 46.89 in late afternoon trading on Monday.

Equitable said it was also “focused on extending the term of our GIC portfolio,” which would entail extending the maturity of any new guaranteed investment certificates, or GICs.

Home Capital’s shares slumped as much as 29 per cent before regaining some ground on Monday and were down 13.2 per cent at C$ 6.98.

The lender, which has hired bankers to help it secure additional funding and assess options, has seen its shares plummet since a securities regulator last month alleged its top executives hid mortgage broker fraud from investors. — Reuters