HOW HOME CAPITAL WENT FROM DARLING TO THE BRINK.
As Home Capital Group Inc. was having its worst week ever, at least one person in the investment world was smiling.
Marc Cohodes, a short seller who has been described as a “scourge of Wall Street” has for more than three years bet on the implosion of the Torontobased alternative mortgage lender.
He’s been one of the company’s most vocal critics, fanning the flames of concern that have lingered since Home Capital acknowledged discovering problems it its broker channels in 2015
And this week’s turmoil was his turn for a victory lap.
“HCG is finished.. Thanks for playing" he tweeted from his account @alderlaneeggs on Wednesday, the day Home Capital’s shares fell the most on record, a whopping 64.9 per cent.
While Cohodes’ declaration may be premature, there has been much for him to relish on the Home Capital front in recent days.
Since the Ontario Securities Commission filed a statement of allegations against the company on April 19, the company’s founder and former CEO, Gerald Soloway, has agreed to step down from the board of directors; there has been a partial run on its funding, with clients pulling out nearly $1 billion of demand deposits from its subsidiary this week — with $ 290 million withdrawn on Thursday alone; and it has been forced to take on a pricey $ 2 billion credit line as an emergency backstop.
Questions now linger about the company’s ability to fund its operations going forward, and there’s speculation that a sale or government intervention could be possible.
Given all the turmoil, it is hard to believe Home Capital was once a darling of the Toronto stock market.
It came from humble beginnings as Home Savings Loan Corp., a St. Catharines-based company which Home Capital founder Gerald Soloway bought in 1987.
At the time, it had just 12 employees, with $ 51 million in assets and $ 3 million in equity.
By 1990, Home Capital started focusing exclusively on residential lending.
Along with its wholly owned subsidiary, Home Trust Inc., Home Capital aimed to provide mortgages to those who didn’t qualify for traditional bank loans — to borrowers were self- employed or had once been bankrupt, or had no credit history.
“It was reporting consistent growth, always meeting their numbers, and 20- plus ROE ( return on equity) for many years,” said Mike Rizvanovic, an analyst with Veritas Investment Research in Toronto. “It was able to see very rapid growth.”