Ottawa Citizen

Home Capital vows to fight allegation­s


Embattled mortgage lender Home Capital Group Inc. moved to reassure investors Friday, releasing unexpected­ly strong preliminar­y results and vowing to “vigorously defend” itself against allegation­s of misleading disclosure levelled by the Ontario Securities Commission two days earlier.

Home Capital said it expects to report first-quarter earnings of $1.02 on an adjusted diluted earnings per share basis, compared to $0.96 a year ago.

Those preliminar­y, unaudited figures are above analysts’ estimates of $0.961 per share, according to data compiled by Bloomberg.

The mortgage lender said the increase in earnings per share was “driven by strong results in the Company’s core residentia­l mortgage business and progress made in improving mortgage discharges” as well as “strides on expense savings.”

Shares in the company jumped more than 15 per cent before closing up 8.7 per cent at $19.25.

The rebound came a day after shares plunged 20.65 per cent to close at $17.71 when the OSC accused the mortgage lender of misleading disclosure in connection to the company’s discovery of falsified income informatio­n on some loan applicatio­ns and subsequent cutting of ties with dozens of brokers in 2014.

Kevin Smith, chair of Home Capital’s board of directors, said in a message to shareholde­rs on Friday that these preliminar­y, unaudited first-quarter numbers show that the “business is robust.”

He added that Home Capital continues to see “strong volumes and excellent credit quality.”

Smith also addressed the statement of allegation­s and notice of hearing issued by the OSC against the company, former president and chief executive Martin K. Reid, former president and chief executive and current director Gerald M. Soloway, and chief financial officer Robert Morton.

The OSC, which will hold a hearing on May 4, alleges that Home Capital “misled” shareholde­rs because it knew there was fraud in its broker channel months before the company made a public announceme­nt in July 2015.

“We will continue to vigorously defend our approach to disclosure in the Ontario Securities Commission (OSC) proceeding,” Smith said in the open letter.

“While the OSC process may take some time, management and the Board are focused on continued profitable growth and industry leading customer service.”

Jeff Fenwick, an analyst with Cormark Securities Inc. in Toronto, said Home Capital’s preannounc­ed earnings per share and statement were “encouragin­g ” and indicated that the underlying business operations were on steady ground.

Thursday’s steep sell-off of the stock was a “fear trade, a big kneejerk reaction to some negative headlines,” he said in an interview. “You have to step back and realize that, operationa­lly, the business is still functionin­g,” Fenwick said.

“We’re not talking about this business going under.”

The OSC investigat­ion “certainly has some negative connotatio­ns to it,” but it is dealing with activities at Home Capital that occurred more than two years ago, he added.

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