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Jun 15, 2017

Home Capital reaches settlement with OSC, shares climb

There was a 'better way' to handle the Home Capital situation: Caldwell Securities

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Home Capital Group (HCG.TO) announced late Wednesday it has reached a settlement with Ontario Securities Commission staff over the regulator's allegations of misleading disclosures surrounding mortgage originations and falsified loan applications in 2015.

The embattled lender will pay $10 million in the settlement and reimburse the OSC $500,000 in costs.

Home Capital’s shares were up $1.54, or 12.70 per cent, to close Thursday trading at $13.67.

Former CEO Gerald Soloway will pay an administrative penalty of $1 million. He'll also be reprimanded and would be prohibited from serving as a director or officer of any reporting issuers for four years.

Former CFO Robert Morton and Martin Reid, who was Home Capital's president during the period covered by the OSC's allegations, will each pay $500,000 penalties, face reprimands, and would be barred from serving as a director or officer of reporting issuers for two years. 

The OSC has scheduled a hearing for August 9 to consider whether to grant final approval to the proposed settlement. 



OSC Spokesperson Kristen Rose told BNN by email that while it is "unusual" for terms of a proposed settlement to be released at this stage, "it is intended to prevent speculation in the market."

Home Capital also announced Wednesday that it will pay $29.5 million, including $11 million that's covered in the OSC settlement, to resolve a class action that's before the Ontario Superior Court. The class action settlement is subject to approval by the court. 

"These settlements will enable us to move forward with regaining the confidence of our depositors and shareholders and creating value for all our stakeholders," said Home Capital Chair Brenda Eprile in a statement. 

"Home Capital will accept full responsibility for failing to meet its disclosure obligations to the marketplace and appreciates the importance of the serious concerns raised by the Commission with respect to continuous and timely disclosure."

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    Turmoil engulfed Home Capital after the OSC allegations were announced on April 19. Within less than a week, Soloway served notice of his plan to step down from the board and Morton was replaced as CFO. 

    On April 26, the company said it was lining up a $2-billion credit line at a steep cost amid the early signs of a run on deposits.

    Almost $600 million was yanked out of Home Capital's high interest savings accounts between March 28 and April 24, leaving the total balance at $1.4 billion, and the deposit erosion gained momentum with every passing day. As of Tuesday, Home Capital's high interest savings account deposit base stood at $104.4 million.

    Home Capital has attempted to staunch the bleeding and win back confidence by bringing fresh perspective into its boardroom. Five new directors have been appointed since early May, including former RBC Head of Strategy Alan Hibben and former Ontario Teachers' Pension Plan CEO Claude Lamoureux. 

    Meanwhile, the company is still searching for a permanent CEO to take over from interim Chief Executive Bonita Then, who inherited the post after Reid was abruptly fired in March.  

    The lender is also aiming to secure a new line of credit to replace the financial lifeline currently in place with the Healthcare of Ontario Pension Plan.

    Home Capital shares have lost almost half their value since the OSC announced its statement of allegations. Yet Eprile is refusing to blame the regulator for the company's rapidly-deteriorating market cap and deposit base.

    "The Company also acknowledges that the Commission is not to blame for the events of recent months involving its liquidity position," she said Wednesday.