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May 2, 2017

Home Capital delays release of Q1 earnings as rivals distance themselves from lender

Home Capital delays earnings release

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Home Capital Group has delayed filing its Q1 earnings until May 11, said a company statement on Tuesday.

Originally set to release earnings on Wednesday, May 3 the statement said "this timing change allows the MD&A to be updated for events that have occurred since the close of the first quarter."

Home Capital’s shares rose more than 11 per cent on Tuesday, after tumbling Monday as depositors pulled out more money from the embattled lender’s high-interest savings accounts.But they rose Tuesday, trading up 12 per cent as of 1:49 p.m. 

The announcement comes amid turmoil at Home Captial that has put other Canadian banks in the spotlight. 

Alternative lender Equitable Group Inc. (EQB.TO) was among those banks and has been on the defence amid the ongoing Home Capital crisis.

The president and CEO of Equitable Bank, a subsidiary of Equitable Group, told BNN in an interview his company is “very aware of the general chatter around this issue.”   

Andrew Moor said his company’s reserves are in good shape, but over the weekend secured $2 billion in committed financing from big banks including TD, National Bank and CIBC, in the event the company requires emergency capital.  

“I think it shows the confidence that all the banks have [in Equitable Bank],” Moor said of the financial commitments, which he said should help bolster customer confidence.

He said his company’s deposit balances have been stable, but noticed a slight decrease since Wednesday, when Home Capital announced a major outflow of deposits and that it was lining up a $2-billion credit line. Moor told BNN he is confident in his bank and doesn’t foresee a need to tap into an emergency line of credit.

The Home Capital lifeline didn’t come cheap. The credit line carries a 10-per cent interest rate and includes a non-refundable $100-million commitment fee that will essentially wipe out the company’s pending earnings. Equitable group is not facing similar costs, said Moor.  “We would still be a very prosperous business even if we had to draw  on the funding and I think that is a very important distinction,” he said.

In its earnings report Monday, Equitable Bank said between Wednesday and Friday of last week, the company saw average daily net deposit outflows of $75 million, with the total over that period representing 2.4 per cent of their total deposit base. The bank said its saw its biggest outflows Wednesday and that the decrease in deposits has been manageable.  

Moor said he was not interested buying any potential loans from Home Capital. “We believe that we’ve got really strong internal controls and a strong loan book. The analogy I’d make is that we are a Volvo and [Home Capital] is a Pinto,” he said. ” I have incredible confidence in our loan book loan by loan because I know how they were processed and created. It’s not possible to have that confidence in another lenders books.”

Equitable Group reported a 55-per-cent jump in net income in its first-quarter earnings, and a 49-per-cent increase in diluted earnings per share compared to 2016.

No solvency issue at Home Capital: First National CEO

First National Financial CEO Stephen Smith tells BNN why his company shouldn't be lumped in with the Home Capital selloff. He also says Home Capital's issue is one of confidence and liquidity, not solvency.

The CEO of alternative mortgage lender First National Financial (FN.TO) also said he wasn’t worried about his company as it is “entirely different” from Home Capital. Stephen Smith said he finds it “a bit difficult to understand” that his company would be lumped in with theirs.

He also said he wouldn’t want to purchase any of Home Capital’s assets.

“I don’t see us being a buyer of [Home Capital] assets,” Smith told BNN in an interview Monday. “We’re a prime mortgage lender, so our assets are insured. They tend to be in the alternative sub-prime space, so those assets probably wouldn’t fulfill our needs.”

When asked about other possible purchasers, Smith, who is a large shareholder in Equitable Bank, said they could be a potential buyer of some of Home Capital’s assets.

“It’s liquidity and confidence issue at Home. There’s no solvency issue at Home,” he said. 

 

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