EARNING BACK TRUST
Management shuffle follows allegations it misled investors
Scandalized Home Capital narrows search for new CEO,
Home Capital Group says it has narrowed down potential CEO candidates to a “short short list” and is weeks away from making an announcement, as it strives to reverse its fortunes after suffering a run on deposits earlier this year. Company chairperson Brenda Eprile said the alternative mortgage lender is also close to identifying a new chief financial officer but will await input from the person who takes over as chief executive.
“We want to make sure that our new CEO is involved in that process,” Eprile told reporters following the company’s annual shareholder meeting in Toronto on Thursday. “That’s a partnership that’s critical.”
The management shuffle is part of the company’s efforts to restore market confidence following allegations from the Ontario Securities Commission (OSC) that it misled investors in its handling of a scandal surrounding falsified loan applications.
The securities watchdog’s allegations caused customers to pull out deposits from the lender’s GICs and savings account en masse, forcing it to secure a costly line of credit from the Healthcare of Ontario Pension Plan to finance its operations.
The company has since settled the OSC case, as well as a class-action lawsuit filed by investors, and has been aggressively advertising high interest rates on its savings products in order to attract additional funds.
While Home Capital says there are encouraging signs of a turnaround afoot, board member Alan Hibben said during the annual meeting that it’s “too early to declare victory.”
The lender has seen inflows of deposits since it got a vote of confidence from famed billionaire Warren Buffett, whose Berkshire Hathaway will invest up to $400 million in the company.
The Toronto Stock Exchange has given conditional approval, as expected, for Berkshire’s initial investment of $153.2 million to acquire16 million Home Capital shares, or about 20 per cent of the company’s total equity.
Asecond round of investment from Berkshire would buy a further $247.7- million worth of Home Capital stock and raise its ownership stake to 38.4 per cent.
That investment requires shareholder approval at a special meeting later this year.
Home Capital also provided an update Thursday on how much its near collapse back in May has cost the lender.
The company says its expenses soared $175 million above normal during the second quarter as it fought to survive a cash shortage.