There was a 'better way' to handle the Home Capital situation: Caldwell Securities
Home Capital Group (HCG.TO) announced agreements on Wednesday that will see it pay $30.5 million in total to settle a class-action lawsuit and allegations of misleading disclosures by the Ontario Securities Commission. Both pacts are subject to final approval. While the embattled lender is hoping to clear the controversy that helped drive down its shares and deposit base, Bay Street is mixed on whether Home Capital will be able to fully recover. Here’s some of what investment professionals and analysts are saying:
"It all could have been handled a different way, a better way, without the destruction of shareholder value in the process… I think it’s in everyone’s interest to have the company survive in some form – including the interests of mortgage seekers. So I think [they should] get the settlement done, whatever the penalties are, pay it and drive on. Clean the place up."
"It was overkill in my opinion, but I think it’s in everyone’s interest to get it done, put it in the past and move forward."
- Caldwell Securities Chairman Tom Caldwell
“When you’re shorting a stock you have to pick your moments. And so, our view is that there will be some positive momentum behind this. So we’ll take the short off, we will wait until we see an opportune moment, and we’ll re-short it again...Just looking at the profitability and ignoring everything else, Home Capital should be trading at less than a buck. So if you love Home Capital for that reason, people should be running out and buying Street capital if that’s their logic. We covered this morning, we will come back and fight another day.”
-Lightwater Partners Portfolio Manager Jerome Hass
“I think we need to take a good, hard look at how the OSC conducted this investigation…I think the Commission handled this very badly from the beginning. And I think the the fact that there was a quick settlement reflects the reality of them having to come to grips with the criticisms that were properly directed towards them. When you’re a regulator looking at a company like Home Capital, you have to be very, very concerned about the liquidity and about the confidence that is necessary for these kinds of investment companies.”
- Principal at Groia & Company Lawyers, Joe Groia
“The speed with which the OSC has settled on this and the amount of money, probably a record fine that the OSC has ever received, in such a short period of time underlines how precarious a situation Home Capital actually is – or was – in.”
-Davis Rea Chairman and CEO John O'Connell
“I don’t think anyone can say that the OSC and the regulators in this country don’t have teeth. It seems like they’re finally going after appropriate targets for appropriate misconduct. In this case, you’ve got sizeable fines that are being paid, and Home Capital I think is, after initially stumbling, they’ve done a decent job of resurrecting the situation…They’re not out of the woods, but they’ve certainly taken significant steps to ensuring the future viability of the business.”
-Sprott Asset Management Senior VP & Senior Portfolio Manager Dennis Mitchell
“We still believe reputational damage, liquidity concerns, impaired funding capabilities, and persistent and material uncertainty have raised the probability the company is unable to continue as a going concern. In our view, these factors continue to outweigh the positive steps management has taken to avoid such an outcome.”
-National Bank Analyst Jaeme Gloyn, in a report to clients
“We view these settlements as a modest positive from the perspective that they both remove uncertainty regarding the materiality of financial sanctions and limit further negative headlines from updates related to evidence presented at potentially long, drawn-out trials.”
-Raymond James Analyst Brenna Phelan, in a report to clients
“Let’s not kid ourselves, this is a pretty sizable settlement here. And again, I just think it’s best for everybody if they move on. The OSC can show that they won. To a limited extent, I guess Home can say that they won. But most importantly, we can move on…I think Home has absolutely done the right thing…we’re excited about the prospects going forward.”
- Taylor Asset Management President and CIO, David Taylor
"The remaining key hurdle (and the most significant) is getting sufficient funding. Replacing the credit line at a lower cost helps profitability but doesn’t solve the funding issue. The key is getting depositors to buy HCG’s GICs again at levels that don’t just fund renewals, but also fund new originations."
- RBC Capital Markets Analyst Geoffrey Kwan, in a report to clients