Home Capital not fully recovered
REAL ESTATE Restoring loan growth still in works: CEO
The chief executive of Home Capital Group Inc. says restoring loan growth at Canada’s largest non-bank mortgage lender is taking longer than planned, and management’s top priority is to beef up training and technology to meet industry demands and improve results.
“The mortgage community, the mortgage brokers, have been very supportive.... They’re ready to send business to us,” Yousry Bissada said in an interview with the Financial Post on Wednesday. “We will do that … when we feel we can meet their demands.”
Home Capital hasn’t fully recovered from the regulatory and financial crisis that rocked the company this year, as third-quarter results released late Tuesday revealed significant lost market share on the residential lending side of the business.
Total mortgage originations in the quarter also plummeted to $385 million from $2.54 billion a year ago.
Home Capital reported net income of $ 30- million (37 cents a share) compared to $ 66.2 million ($ 1.01) a year earlier.
“T he mos t i mpor t ant thing was stabilizing our liquidity and getting our deposits in a position so that we could carry on with our business of lending,” Bissada said, adding that the comfort level that the company could “turn the tap on or off like we used to” was reached only about eight weeks ago.
A couple of forays into the market in July and September convinced him to make additional training and technology a priority.
“Some parts of our business were providing excellent service, turning around deals in one day or less, 24 hours or less, which is what our brokers expect and deserve with their clients,” said Bissada, who was tapped to lead the company in July. “Other areas, we were not as quick as we would have liked.”
As mortgage lenders brace for the impact of tougher regulatory stress tests for uninsured homebuyers in January, Home Capital has lost ground to competitors, said CIBC World Markets analyst Marco Giurleo.
Uninsured single- family originations reached a low of $203 million, down 73 per cent from the last quarter, while resulting loans growth was down a “material” nine per cent, the analyst wrote in a note to clients, adding that Home Capital is “significantly lagging key peer” Equitable Group, which notched a six- per- cent quarter- overquarter gain in its portfolio.
“We suspect the upcoming B-20 ( stress test) changes will only add salt to the wound, driving further contraction in 2018,” Giurleo wrote.
“Bottom line, until HCG ( Home Capital) demonstrates an ability to grow its portfolio, capital will remain trapped on the balance sheet and profitability will be constrained to the mid- single digit range.”
Still, the Toronto- based mortgage lender is in better shape than in May, when it warned that uncertainty around funding had cast “significant doubt on the company’s ability to con- tinue as a going concern.”
Canada’ s largest nonbank lender had been hit with regulatory accusations of misleading disclosure in April, and was a target of vocal short-sellers. Amid the controversy, stoked in part by the sudden departure of Bissada’s predecessor in March, depositors withdrew tens of millions of dollars from highinterest savings accounts, which Home Capital uses to fund its mortgage lending.
Since then, the company has settled the regulatory allegations brought by the Ontario Securities Commission, sold assets, and received a $ 153.2- million capital injection and $ 2- billion credit line from a subsidiary of Warren Buffett’s Berkshire Hathaway Inc.
By August, Home Capital said the uncertainty that had cast doubt on its ability to continue as a going concern had been resolved.
Home Capital shares rose 3.34 per cent to close at $ 14.85 in Toronto Wednesday.