Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

Agree there should be no concern with GIC deposits. Worst case really is that someone currently has, for example, a 2.4% 5 year GIC of which only 3.5 yrs is left that could be crystallized and one is then faced then with replacing that with another 3 or 4 yr GIC at lower rates elsewhere to continue their ladder. The opportunity cost of a gap between liquidation and cash available to re-invest might be the minor issue.

I think if the OSC could complete their investigation quickly and levy the fine, much of the cloud could disappear allowing the company to recover and/or be more lucrative as a going concern to a buyer.

P.S. So much for the value of HISA deposits. Might be a lesson for all those online banks falling over themselves to grab that kind of investor money.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

Most of you may have already seen this, but a quote (copy) from BNN
We also have comprehensive coverage of the concerns over alternative mortgage lenders as Home Capital copes with an outflow of savers' money. Amber Kanwar has been getting big web traction with her column arguing that even though the Ontario Securities Commission says shareholders were misled, "there is still no evidence of widespread and systemic fraud" at the company.

We heard this morning from Andrew Moor, CEO of Equitable Group, which saw its stock plunge 17 per cent on Friday. The company says it has seen a "manageable" outflow of deposits and Moor says he has lined up $2-billion in funding, if needed, from the big banks.Terms include a 0.75 per cent commitment fee and a 0.50 per cent standby charge on undrawn amounts. Raymond James says the backstop credit facility was "obtained at reasonable cost."
Smart move obviously, and reinforces my prior thought about the ominous value of HISA funds.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by scomac »

AltaRed wrote: 01 May 2017 10:15 Agree there should be no concern with GIC deposits. Worst case really is that someone currently has, for example, a 2.4% 5 year GIC of which only 3.5 yrs is left that could be crystallized and one is then faced then with replacing that with another 3 or 4 yr GIC at lower rates elsewhere to continue their ladder. The opportunity cost of a gap between liquidation and cash available to re-invest might be the minor issue.

I think if the OSC could complete their investigation quickly and levy the fine, much of the cloud could disappear allowing the company to recover and/or be more lucrative as a going concern to a buyer.

P.S. So much for the value of HISA deposits. Might be a lesson for all those online banks falling over themselves to grab that kind of investor money.
And perhaps a bit of a lesson for depositors as well. When it comes to cash balances in HISA's and the purchase of investment grade bonds, the first consideration should be the safety of principal rather than the yield. This (and convenience) has kept me at a big six bank for HISA and restricts my bond purchases to A grade or better with a bias towards gov't bonds when credit spreads are thin like today.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by ig17 »

AltaRed wrote: 01 May 2017 10:15 P.S. So much for the value of HISA deposits. Might be a lesson for all those online banks falling over themselves to grab that kind of investor money.
Might be a lesson for OSFI more than for anyone else. A former investor in HCG claims that OSFI encouraged the company to offer HISAs to diversify its funding sources.
Michael McCloskey wrote: A little-known fact is that several years ago OSFI encouraged Home Capital to broaden its funding sources by growing demand deposits. Historically, almost all of Home Capital’s funding came from fixed-term deposits (GICs) which were locked in and closely matched to the term of the company’s assets (mortgage loans). Demand deposits represented $2.5 billion of Home Capital’s funding at the end of 2016 (vs. only $0.1 billion in 2012).

...

The irony here is that OSFI’s goal of reducing risk by having Home Capital diversify its funding sources may have perversely have contributed to the current run on the company’s funding.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by SoninlawofGus »

scomac wrote: 01 May 2017 11:50 And perhaps a bit of a lesson for depositors as well. When it comes to cash balances in HISA's and the purchase of investment grade bonds, the first consideration should be the safety of principal rather than the yield. This (and convenience) has kept me at a big six bank for HISA and restricts my bond purchases to A grade or better with a bias towards gov't bonds when credit spreads are thin like today.
But would you rank a provincial bond or any grade of corporate bond ahead of a CDIC-backed guarantee? I would not.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

ig17 wrote: 01 May 2017 12:10 The irony here is that OSFI’s goal of reducing risk by having Home Capital diversify its funding sources may have perversely have contributed to the current run on the company’s funding.
Indeed. Think you (or someone else) posted that quote before, but is worth repeating that the regulator appears to have their hands dirty too. Still, the FIs have the obligation to take responsibility (other than the result of a regulatory dictate) for their risk management policy regardless of airheads. We don't know the reasoning behind it, variable rate open mortgages perhaps? Matters not much now. The risk has come home to roost.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by gsp_ »

Absolutely shocked at the difference in costs between HCG and EQB's emergency funding. Reinforces just how lousy the inside deal by HOOPP's CEO was.

If anyone has additional info that can, in part, explain the gulf in financing costs, I'd like to hear it.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by NorthernRaven »

gsp_ wrote: 01 May 2017 13:39 Absolutely shocked at the difference in costs between HCG and EQB's emergency funding. Reinforces just how lousy the inside deal by HOOPP's CEO was. If anyone has additional info that can, in part, explain the gulf in financing costs, I'd like to hear it.
Home was in the midst of a big run on their deposits, may have decided they needed a backstop right then, not a few days later, and didn't have many options. Maybe they didn't do sufficient shopping, or didn't have time. Maybe there really is more questions about their mortgage book compared to Equitables'. But the two situations weren't identical, even if they did get rolled by HOOPP.
AltaRed wrote: 01 May 2017 13:17
ig17 wrote: 01 May 2017 12:10 The irony here is that OSFI’s goal of reducing risk by having Home Capital diversify its funding sources may have perversely have contributed to the current run on the company’s funding.
Indeed. Think you (or someone else) posted that quote before, but is worth repeating that the regulator appears to have their hands dirty too. Still, the FIs have the obligation to take responsibility (other than the result of a regulatory dictate) for their risk management policy regardless of airheads. We don't know the reasoning behind it, variable rate open mortgages perhaps? Matters not much now. The risk has come home to roost.
I don't know if the regulators would really have said something like "increase demand deposits in relation to your fixed deposits". Perhaps it was "if you are trying to increase your funding, demand deposits should be in the mix as opposed to [say] over-reliance on wholesale funding" like the deposit notes. "The government made me do it" isn't really an answer, and to be fair, it would have been quite a mouthful for regulators to say that retail demand deposits are unsuitable for certain type of institutions. There's only so much you can do when there's a run - what's to prevent a credit union or small trust or bank from having the same sort of problem if the management absconds to Brazil or some other confidence-draining event occurs. Perhaps sub-prime specialists are a special case and need specific funding rules, but I'm not convinced by arguments that that is obvious before it happens.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

NorthernRaven wrote: 01 May 2017 14:08 but I'm not convinced by arguments that that is obvious before it happens.
Not by outsiders anyway.... short seller calculated risk taking excepted.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by scomac »

SoninlawofGus wrote: 01 May 2017 12:18
scomac wrote: 01 May 2017 11:50 And perhaps a bit of a lesson for depositors as well. When it comes to cash balances in HISA's and the purchase of investment grade bonds, the first consideration should be the safety of principal rather than the yield. This (and convenience) has kept me at a big six bank for HISA and restricts my bond purchases to A grade or better with a bias towards gov't bonds when credit spreads are thin like today.
But would you rank a provincial bond or any grade of corporate bond ahead of a CDIC-backed guarantee? I would not.
In theory the gov't- backed guarantee should be less risky, but until CDIC is tested, there is a measure of uncertainty. Isn't this really what's at stake here with the run on deposits?

FWIW, I view a gov't bond on par with a CDIC backed term deposit from a risk perspective. Ultimately it is the power of taxation that provides you with the certainty that capital will be returned. Any differences in yield between instruments can be attributed to liquidity premia, term length and frequency of interest payment.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by NorthernRaven »

scomac wrote: 01 May 2017 14:14In theory the gov't- backed guarantee should be less risky, but until CDIC is tested, there is a measure of uncertainty. Isn't this really what's at stake here with the run on deposits?
No. It might be ignorance, or panic, or just "no reason involved when there's many other fish in the sea" (a perfectly good reason). But there can't be anyone seriously questioning that CDIC coverage is in any question. The only thing that would be tested in a payout are their systems, since they haven't actually done this for real in the modern era.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

I'd consider the '90s as modern era http://www.cdic.ca/en/about-cdic/resolu ... story.aspx I suspect CDIC (and FIs) had systems that could talk to each other then but I agree it's been 21 years.....

Added: The resolution process is an interesting read too... http://www.cdic.ca/en/about-cdic/resolu ... tools.aspx
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by scomac »

NorthernRaven wrote: 01 May 2017 14:44
scomac wrote: 01 May 2017 14:14In theory the gov't- backed guarantee should be less risky, but until CDIC is tested, there is a measure of uncertainty. Isn't this really what's at stake here with the run on deposits?
No. It might be ignorance, or panic, or just "no reason involved when there's many other fish in the sea" (a perfectly good reason). But there can't be anyone seriously questioning that CDIC coverage is in any question. The only thing that would be tested in a payout are their systems, since they haven't actually done this for real in the modern era.
And that is my point really. Why take the chance that there might be issues with getting paid out when I can simply pull my money today and put it someplace else with less apparent risk? Call it fear or ignorance, but it's really all about peace of mind.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by patriot1 »

scomac wrote: 01 May 2017 14:14 Ultimately it is the power of taxation that provides you with the certainty that capital will be returned.
The fact that the BoC is buyer of last resort for all federal Crown obligations ultimately provides that certainty, and it is unlimited.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by scomac »

patriot1 wrote: 01 May 2017 19:58
scomac wrote: 01 May 2017 14:14 Ultimately it is the power of taxation that provides you with the certainty that capital will be returned.
The fact that the BoC is buyer of last resort for all federal Crown obligations ultimately provides that certainty, and it is unlimited.
So what you're saying is that it has nothing to do with taxation and everything to do with printing money in which case it's an act of faith.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

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Of course the normal means of meeting government obligations is through taxation. But the ultimate means, not dependent on the performance of the private sector, is monetization of the obligations. Of course the point can be made that the latter is a form of taxation itself.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

EQ is being cocky. To quote BNN this morning,
CEO Andrew Moor told us that he's not interested buying loans from Home Capital, whose stock has slid after the Ontario Securities Commission said investors were misled on fraudulent loans. "We believe that we've got really strong internal controls and a strong loan book," Moor said. "The analogy I'd make is that we are a Volvo and [Home Capital] is a Pinto. I have incredible confidence in our loan book loan-by-loan because I know how they were processed and created."
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by scomac »

I watched BNN last night for the first time in ages. It was replay of the earlier Market Call show featuring Norman Levine. I have always found that he was a pretty reasonable fellow. He went to great pains to explain that he thought that there was nothing fundamentally wrong with HCG's business and that this was simply a crisis of confidence. When asked if he would call it a buy here, he said that he had no vested interest. He wasn't a buyer now and he wasn't a buyer before because he didn't care for the exposure to housing.

It doesn't matter if it's a silk purse or a sow's ear. If no one wants to own it, then no one wants to own it and you can't do anything about that, faulty perception or otherwise! I see no other alternative other than to unwind the business. We should all pay attention because it's going to be a good case study as to what to expect should this spread.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by DavidR »

Reuters says Apollo and Blackstone are taking a look, and maybe Brookfield and Fairfax.
http://www.reuters.com/article/us-home- ... SKBN17Y21G
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by ig17 »

AltaRed wrote: 02 May 2017 10:26 EQ is being cocky. To quote BNN this morning,
CEO Andrew Moor told us that he's not interested buying loans from Home Capital, whose stock has slid after the Ontario Securities Commission said investors were misled on fraudulent loans. "We believe that we've got really strong internal controls and a strong loan book," Moor said. "The analogy I'd make is that we are a Volvo and [Home Capital] is a Pinto. I have incredible confidence in our loan book loan-by-loan because I know how they were processed and created."
Andrew Moor should explain why he hired a couple of underwriters who had been fired by HCG for rubber stumping fraudulent applications. One of them used to be a "top producer" at HCG.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by AltaRed »

Indeed. Someone might call him on that. So much for CEO credibility, eh?
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by Thegipper »

AltaRed wrote: 02 May 2017 18:57 Indeed. Someone might call him on that. So much for CEO credibility, eh?
It's a good reason for avoiding this stock .
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by Shakespeare »

I'm waiting for this to put the big banks on sale. :mrgreen:
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by Hammerer »

Shakespeare wrote: 02 May 2017 21:43 I'm waiting for this to put the big banks on sale. :mrgreen:
A 3-4.5% discount isn't a sale?

With the hit to their market caps (~$450b), if the big 5 had secretly bought HCG's $20b in mortgages for... a couple cents on the dollar, they would have come out ahead.

The private bailout market in Canada is self-defeatingly weak. Or very effective and this is the first time we heard the failure of its application.
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Re: Home Capital Group (Symbol-HCG) [Delisted 31-Aug-2023]

Post by Shakespeare »

A 3-4.5% discount isn't a sale?
A 20% discount is a sale.

A 50% discount is a once-in-a-generation bargoon.
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