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May 17, 2017

Home Capital situation not ‘an anomaly’: Investment strategist

Home Capital looms over banks' earnings

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One investment strategist isn’t buying arguments that the Home Capital crisis is a one-off problem, but said he believes the turmoil at the alternative lender isn’t indicative of a systemic problem.

“I’m unwilling to dismiss something like this as simply an anomaly; but I don’t think Home Capital is the canary in the coal mine,” Craig Fehr, Canadian investment strategist at Edward Jones, told BNN in an interview Wednesday. “You think about the funding sources they use, the mortgages they underwrite – very different from what the big banks are doing. So I don’t think this bleeds into some sort of a systemic issue.”

“I think what it does do is it shines a light on the housing market in terms of [price] appreciation that’s unstainable. And it shines a light on consumer finances that are very stretched with debt,” he added.

Finance Minister Bill Morneau said earlier this month there was no link between the Home Capital crisis and risks in Toronto and Vancouver’s hot housing markets.

Bank of Canada Governor Stephen Poloz also recently spoke out on Home Capital, telling The Globe and Mail that the problem within the company is contained and “indiosyncratic.”

Balances in the high-interest savings accounts of Canada’s largest alternative lender have fallen 94 per cent since March 27, when the company fired former Chief Executive Martin Reid. Withdrawals continued at a rapid pace the following month when the Ontario Securities Commission alleged Home Capital and three of its past and present executives made misleading statements around income verification to investors.

On Tuesday, Home Capital said its high-interest savings deposit balance stood at $120.9 million, compared with $125.4 million last Friday.